Source: Wind

Us stocks rebounded on the eve of the Fed's first interest rate decision for the new year, with a slightly lower-than-expected employment cost index and the outlook for a global economic recovery. As of Tuesday's close, the S & P 500 was up 1.46% at 4076.60, the NASDAQ was up 1.67% at 11584.55, and the Dow was up 1.09% at 34086.04.

With the close on Tuesday, January 2023 has come to an end. The Nasdaq composite index rose strongly by nearly 11% throughout January, its best performance since 2001.

However, some economists believe that at the latest interest rate meeting, Federal Reserve Chairman Powell will want to overturn the view that the Fed is about to turn.

They argue that falling bond yields and loosening financial conditions will actually increase inflationary pressures. Avery Shenfeld, chief economist of CIBC World Markets, said: "the trend of the bond market." It means the Fed will have to raise interest rates further. " These economists expect the Fed to raise interest rates at least by May.

Other economists point out that loose financial conditions are not the worst thing when the economy continues to hover on the brink of recession. They argue that inflationary trends have enabled the Fed to suspend interest rate hikes as early as March.

All sides believe that it is a foregone conclusion that the Fed will raise interest rates by 25 basis points this week, which will bring the Fed's benchmark interest rate to a range of 4.5% to 4.75%. After this meeting, there will be no latest forecasts for the economy or interest rates, which will be launched in March.

Krishna Guha, an analyst at Evercore ISI, said the change in the policy statement could have more impact than Powell said at the press conference. Here are four ways economists think Powell may be hawkish.

1. Interest rate hike is still in progress

In December, the Fed said in a statement that Fed officials expected "a sustained increase in the target range would be appropriate".

Michael Feroli, chief US economist of JPMorgan Chase & Co, believes that while continuing to use the plural form of "interest rate hike" may be the simplest and strongest approach, he believes that this approach can be well explained. He said the Fed would change its language to say that the current rate hike "may be appropriate".

Analysts at Evercore said Mr Powell would be concerned that an exit from the "rate hike" could be seen as a harbinger of suspending rate hikes after March. "as a result, he is likely to decide to proceed cautiously and compromise on 'further rate hikes' in the terms of the press conference, that is, more than once, but not necessarily 'continuous'," he said. "

2. Aim to relax the financial situation.

In the minutes of the Fed's December meeting, officials worried that "unfounded easing in financial conditions, especially if the public misunderstands the Fed's response function, will complicate efforts to restore price stability."

Paul Ashworth, chief North American economist at Capital Economics, said: "if the Fed wants to add hawkishness to Wednesday's statement, it can reinforce the Fed's economic forecast in the wording of its forward guidance that interest rates will not start to fall again until 2024."

3. Emphasize that interest rates are not expected to be cut this year.

The minutes of the Fed's December meeting also stressed that none of the 19 senior officials "expects it to be appropriate to start lowering the federal funding target in 2023."

Diane Swank, chief economist at KPMG, believes that Powell is likely to reiterate this view at a news conference. Swank said: "Powell must show determination."

4. The lattice diagram has changed.

Every three months, Fed officials publish their expectations for the path of interest rate policy, the so-called "bitmap". In December, Fed officials' median forecast was that the Fed's target range would rise to 5% Mel 5.25% this year. At a rate of 25 basis points, that means the rate hike will end in May.

Derek Holt, head of capital markets economics at Bank of Nova Scotia, believes this could happen again. "I think Powell is likely to reiterate his view in March that the point may go higher again."

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