Will Jerome Powell set the stage for slowing rate hikes on Wednesday?

GB Market Commentary 28/11/2022

by Marcus Sotiriou

Bitcoin fell in the early hours of the morning, reaching around $16,000, as the S&P 500 Futures is down 0.73% at time of writing. Jerome Powell will be speaking on Wednesday, which will provide the market with some clarity on the Federal Reserve’s stance. The FOMC minutes released last week give us some positive indications about the Federal Reserve’s monetary policy going forward.

The minutes detailed that the positive GDP from Q3, following two negative quarters of GDP growth, was ‘unusually brisk’, signalling that it was an anomaly due to large real net exports - the largest in 42 years. The increase in net exports was due to the dollar being so strong – the highest in 37 years. The minutes mentioned that global economic growth in Europe and China is weakening so this boost in net exports could reverse in near term. If this occurs, the GDP in Q4 could revert back to negative.

Also, the November Survey of Professional Forecasters (SPF) predict 1% growth in the 4th quarter, meaning 2022 growth would be 0.8% - substantially below 5.7% last year.

In addition, the minutes claimed that a ‘recession is not out of the question’ - a recession was not previously in their forecasts (publicly anyway).

This forecast of slower growth has led the FOMC to mention that ‘slowing the pace of rate increases would soon be appropriate’ in their meeting minutes. This allowed the stock market to bounce back last week. If the next CPI data on December 13th comes in lower than October’s 7.7%, it would provide more evidence to slow the pace of rate increases, so the crypto market could also see a major recovery too.