Key day for markets: attention focused on the Fed and the rate hike

The minutes of the November 1-2 monetary policy meeting, due to be released on Wednesday, could show the extent to which a disagreement has begun to emerge at the US central bank, at a time when it has ended the tendency to raise interest rates in advance and has started looking for a breakeven point with minor movements to stop them at some point.

The Fed’s monetary policy statement on November 2 tried to bridge the gap, promising “continued hikes” in rates until they are “tight enough” to control inflation.while saying that the size of the next hikes would take into account “the cumulative tightening” done so far, as well as the fact that the impact of those hikes might not be felt for some time.

What is not clear is to what extent Fed officials believe they need to raise rates, and to what extent risk sentiment is shifting towards concerns about “exceeding” a target level and doing more damage. the economy than is necessary to control inflation.

The minutes “could show some differences between policy makers who want to take a more ‘wait and see’ approach and those … who continue to present a more definitive view that financial conditions will have to tighten furtherCiti analysts wrote on Sunday.

At this point, the Fed Chairman, Jerome Powelland even traditionally easing monetary policymakers, remain in line after further rate hikes, and Powell said it remains riskier to fall short in fixing the worst bout of inflation since the 1980s than to raise rates. in excess.

“If we tightened too much, we could use our tools roundly to support the economy, whereas if we don’t get inflation under control because we don’t tighten enough, we’re now in a situation where inflation is going to take hold and the costs, the employment costs in particular will potentially be much higher,” Powell told a news conference after the end of the November policy meeting.

“From a risk management standpoint, we want to make sure we don’t make the mistake of not tightening enough, or easing too soon.”

However, with the Fed’s hikes since March totaling 3.75 percentage points, including moves of three-quarters of a percentage point in the last four meetings, policymakers have indicated they are willing to rein in the faster pace of tightening. of the central bank since the early 1980s.

With recent government data showing slower-than-expected inflation, several Fed officials have said they are comfortable with a half-percentage point increase at the December 13-14 meeting, an expectation taken into account in current market prices for contracts linked to the central bank’s policy rate.

The minutes, which will be published this afternoon, could help show the extent to which that vision is shared, and the extent to which members of the Federal Open Market Committeein charge of setting monetary policy, may consider that they are about to pause rate hikes.

A more precise interpretation will come at the end of a meeting in three weeks’ time, when policymakers publish new quarterly economic projections that include their unemployment and inflation outlook for next year and the appropriate path for monetary policy.