The Fed does not plan to lower interest rates until the middle of next year
October 23, 2023 3:22 am
In recent weeks, the Federal Reserve has transformed from one of the most pragmatic central banks into one of the most unpredictable. It all started when several FOMC members stated that additional interest rate hikes were no longer needed. Why these statements were made, when inflation was rising in July and August and reached 3.7% in September, is personally unclear to me. Perhaps the Fed understands that each new tightening is bringing the strong U.S. economy closer to a recession, but the latest GDP data clearly show that there is no need to fear a recession in the near future. The Fed has the ability to continue tightening, but for some reason, it refuses to do so.
Furthermore, Jerome Powell stated this week that an interest rate hike is possible, but it will depend on economic data. With these words, the Fed chair merely reiterated the rhetoric he had consistently voiced before. However, Powell’s comments had the effect of a bombshell detonating, especially against the backdrop of his colleagues’ “dovish” comments made earlier.
Later, the probability of a rate hike in November dropped to nearly zero. This means that the market is not expecting a tightening at the next meeting, which is scheduled in about two weeks. On Friday, Raphael Bostic, the President of the Federal Reserve Bank of Atlanta, stated that the central bank does not plan to lower interest rates until the middle of next year. He also noted that inflation has declined and should continue to decline, while the economy continues to show excellent resilience. However, Bostic’s comments refer to the situation three months ago. Currently, inflation is not decreasing; it is increasing. To slow down inflation once again, it would be necessary to continue raising interest rates.
Also, Bostic stated that there will be no recession in the American economy, and inflation will decrease to 2%. “We should proceed very cautiously. The end of 2024 is an appropriate time to lower rates. The Fed will fulfill its mandate for price stability,” believes one of the members of the Fed Board of Governors.
Based on everything mentioned above, I can personally conclude that the Federal Open Market Committee (FOMC) does not have a unanimous opinion, and each of its members individually is not certain about the prospects for lowering inflation. Therefore, despite the dovish statements by Bostic, Logan, and their colleagues, I expect another tightening of monetary policy and a new rise in the U.S. dollar.
Based on the analysis conducted, I conclude that a bearish wave pattern is currently being formed. The pair has reached the targets around the 1.0463 level, and the fact that the pair has yet to break through this level indicates that the market is ready to build a corrective wave. In my recent reviews, I warned you that it is worth considering closing short positions because there is currently a high probability of forming an upward wave. Failing to break the 1.0637 level, corresponding to 100.0% according to Fibonacci, points to the market’s readiness to resume the downward movement, but I believe that Wave 2 or b will turn out to be three-wave.
The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can expect from the pound in the near future is the formation of Wave 2 or b. However, there are currently significant issues, even with the corrective wave. At this time, I would not recommend new short positions, but I also do not recommend longs because the corrective wave appears to be rather weak
The material has been provided by InstaForex Company – www.instaforex.com
In recent weeks, the Federal Reserve has transformed from one of the most pragmatic central banks into one of the most unpredictable. It all started when several FOMC members stated that additional interest rate hikes were no longer needed. Why these statements were made, when inflation was rising in July and August and reached 3.7% in September, is personally unclear to me. Perhaps the Fed understands that each new tightening is bringing the strong U.S. economy closer to a recession, but the latest GDP data clearly show that there is no need to fear a recession in the near future. The Fed has the ability to continue tightening, but for some reason, it refuses to do so.
Furthermore, Jerome Powell stated this week that an interest rate hike is possible, but it will depend on economic data. With these words, the Fed chair merely reiterated the rhetoric he had consistently voiced before. However, Powell’s comments had the effect of a bombshell detonating, especially against the backdrop of his colleagues’ “dovish” comments made earlier.
Later, the probability of a rate hike in November dropped to nearly zero. This means that the market is not expecting a tightening at the next meeting, which is scheduled in about two weeks. On Friday, Raphael Bostic, the President of the Federal Reserve Bank of Atlanta, stated that the central bank does not plan to lower interest rates until the middle of next year. He also noted that inflation has declined and should continue to decline, while the economy continues to show excellent resilience. However, Bostic’s comments refer to the situation three months ago. Currently, inflation is not decreasing; it is increasing. To slow down inflation once again, it would be necessary to continue raising interest rates.
Also, Bostic stated that there will be no recession in the American economy, and inflation will decrease to 2%. “We should proceed very cautiously. The end of 2024 is an appropriate time to lower rates. The Fed will fulfill its mandate for price stability,” believes one of the members of the Fed Board of Governors.
Based on everything mentioned above, I can personally conclude that the Federal Open Market Committee (FOMC) does not have a unanimous opinion, and each of its members individually is not certain about the prospects for lowering inflation. Therefore, despite the dovish statements by Bostic, Logan, and their colleagues, I expect another tightening of monetary policy and a new rise in the U.S. dollar.
Based on the analysis conducted, I conclude that a bearish wave pattern is currently being formed. The pair has reached the targets around the 1.0463 level, and the fact that the pair has yet to break through this level indicates that the market is ready to build a corrective wave. In my recent reviews, I warned you that it is worth considering closing short positions because there is currently a high probability of forming an upward wave. Failing to break the 1.0637 level, corresponding to 100.0% according to Fibonacci, points to the market’s readiness to resume the downward movement, but I believe that Wave 2 or b will turn out to be three-wave.
The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can expect from the pound in the near future is the formation of Wave 2 or b. However, there are currently significant issues, even with the corrective wave. At this time, I would not recommend new short positions, but I also do not recommend longs because the corrective wave appears to be rather weak
The material has been provided by InstaForex Company – www.instaforex.com
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