• The Federal Reserve is expected to raise interest rates by +0.25% at their upcoming meeting.
• Financial conditions are currently not seen as sufficiently restrictive, which is why the Fed expects ongoing hikes to be appropriate.
• Market participants expect inflationary pressures to abate in 2023 and beyond, which will be bullish for risk-assets.
The Upcoming FOMC Meeting
The Federal Reserve (FOMC) will be meeting on February 1st to decide their next policy decision regarding interest rates. Currently, the market assigns a near 100% certainty that they will raise rates by +0.25%, setting the policy rate to 4.5%-4.75%.
Maintaining Policy Restraint
In Jerome Powell’s December 14 press conference, he stressed the need for maintaining policy restraint in order to ensure that inflation does not stage a comeback after initial signs of slowing, similar to what happened in the 1970s. He also mentioned that their focus was on persistent moves and not short-term ones when it comes to financial conditions.
Pricing In The Transitory Inflation
Market participants are expecting inflationary pressures from 2022 to abate in 2023 and beyond, which has caused global risk assets to rally so far this year. If these expectations come true, it would lead to lower interest rates and thus be bullish for risk-assets accordingly.
Second Order Effects Of Changes
When considering the potential second-order effects of interest rate changes and other market movements, it’s important to keep in mind that they can be quite frivolous in nature and should not necessarily cause any long-term shifts or disruptions if they don’t last too long or go too deep into financial conditions overall.
The Federal Reserve is expected raise interest rate by +0 25% soon with the current expectation being an 100% certainty of this outcome; however readers should watch out for any unexpected changes as well as potential second-order effects of said changes such as frivolous disruptions if they go too deep into financial conditions overall . Finally market participants are optimistically expecting inflationary pressures from 2022 to abate in 2023 and beyond which would lead to lower interest rates and thus be bullish for risk-assets accordingly