Week in Review: Dec 19th to Dec 22nd

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1. Fed raised rates by 50bps

As anticipated, the Federal Open Market Committee (FOMC) raised the Federal Funds rate by 50 basis points during its meeting last Wednesday, bringing it to 4.50%. However, the Summary of Economic Projections (dot plots) released during the meeting took some by surprise with its hawkish tone, as it indicated that FOMC members expect the median interest rate to reach 5.1% by the end of 2023. This projection would require the FOMC to increase interest rates by approximately 75 basis points within the next year and maintain them at that level for the remainder of the year.

In reference to the two most recent consumer price index (CPI) reports, which showed lower-than-expected inflation and a significant decrease from the previous readings, Federal Reserve Chairman Jerome Powell stated that the slower pace of price increases is “welcome,” but added that it will take more evidence to confirm that inflation is consistently decreasing. This statement can be interpreted as hawkish, as it suggests that the Federal Reserve may be hesitant to make further policy changes until there is more clarity on the direction of inflation.

2. BOE lifted rates by 50bps

Last Thursday, the Bank of England met and decided to increase interest rates by 50 basis points to 3.5%, as anticipated. However, the vote was not unanimous, with six members supporting the rate hike and three members expressing differing views. Two members voted to keep rates unchanged, while one member voted for a larger increase of 75 basis points. Despite the increase, BOE Governor Bailey indicated that further rate hikes may be necessary in the future, but added that current projections suggest that inflation has reached its peak and is expected to remain high in the coming months.

3.  BOJ meeting

On Tuesday, the Bank of Japan is anticipated to maintain its current interest rate of -0.1% and its cap on the 10-year Japanese government bond at 0.25% during its monetary policy meeting. Despite a rise in inflation to 3.6% year-on-year in October, the BOJ has indicated that it is prepared to take additional steps, if necessary, to maintain an easing policy stance. The November Consumer Price Index for Japan will be released on Friday, with expectations of a slight increase to 3.7% year-on-year. However, the central bank is likely to view this as a temporary change. It is worth noting that some BOJ members have mentioned the possibility of reviewing monetary policy, but these statements have generally been

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