Things to Know Before FED

Things to Know Before FED

In the global markets, the eyes are turned to the meeting of the Federal Open Market Committee (FOMC) dated 13-14 December. Market expectations are for the FOMC to raise interest rates by 50 basis points.

The FOMC, which increased the federal funds target rate for the fourth time by 75 basis points to the range of 3.75 - 4.00 percent at its meeting on November 1 - 2, gave signals that the tightening process had entered the final stage.

As a matter of fact, the disinflationary process has begun in the USA. The annual consumer price index (CPI), which saw its highest level since 1981 at 9.1 percent in June, fell to 7.7 percent in October, falling in line with market expectations in the following months. The headline CPI for November will be published today.

However, the producer price index (PPI) announced by the US Department of Labor last week is a preliminary indicator. Accordingly, annual PPI decreased from 8.1 percent in October to 7.4 percent in November. Core PPI, which fell from 6.8 percent to 6.2 percent in this period, pointed out that price pressures eased.

On the other hand, labor market conditions in the USA remain tight. In the data of the US Department of Labor for November, nonfarm payrolls increased by 263 thousand, while the unemployment rate remained at 3.7 percent.

Under this outlook, it is almost certain that the FED will be less aggressive in tightening monetary policy at its December meeting to be announced tomorrow. In the survey conducted on the CME, the probability of the FED to increase interest rates by 50 basis points is seen at the level of 75 percent.

However, the Economic Projections Report to be published by the bank with the meeting is extremely critical. The report will set out the Committee's forecasts for medium-term interest rates, inflation, growth and unemployment. In addition, the statement of Fed Chairman Powell, who will be in front of the press, will be followed.

If the main message from the meeting is that the pace of monetary policy tightening will be further reduced in the coming months, this may support stocks by recovering investor risk sentiment in the markets. However, pointing to a new cycle with a tightening of 50 basis points may trigger a reaction for the US dollar.