As the markets are mostly betting that the Fed will keep rates unchanged at today’s meeting, more interest seems to be given to what Jerome Powell will say in his speech after the announcement. Will he provide any hints as to whether the end of the hike cycle has been reached?
US interest rate decision today
Today the Federal Open Market Committee (FOMC) will meet to decide on interest rates. The market is betting that the federal funds rates will remain steady at this meeting. The question now is what the Fed’s move will be at the next meeting and whether the end of the hike cycle has already been reached or if there is still room for more hikes. Investors will receive more clues about this from Powell’s press conference.
US energy prices have risen to highest levels since October 2022
Although the overall Consumer Price Index (CPI) has been falling recently, the week's increase in gasoline and energy prices in the US was the largest since October 2022.
The price of crude oil has been steadily rising since the end of June and shows no signs of slowing down. The price of crude oil is more related to supply than demand and the supply side is being heavily influenced by the latest production cuts in Saudi Arabia and Russia.
US production is also falling. The US Energy Information Administration reported that output from the country’s key shale-producing regions is on course to decline. This would be the third straight month of declines and the lowest level since May.
The Fed’s projections on the future of interest rates are in focus
While few expect another rate hike this week, all eyes will be on whether the Fed's projections support its view that another quarter-point hike to 5.5-5.75% is still in the pipeline.
The futures markets are increasing their bets on Fed rates through 2024 and implied policy rates for the middle to the end of the year have reached cyclical highs.
High or higher interest rates over a long period of time are not favourable for the performance of equity markets.
This unfavourable interest rate scenario has had a negative impact on the North American market stock indices, which have been losing ground all week.
Jerome Powell holds the key to the near future today.
Oil monthly chart, September 20, 2023. Source: CAPEX.com WebTrader.
Key Takeaways
- FOMC meeting today to decide on interest rates.
- The federal funds rates are expected to be kept stable.
- Markets are eager to hear what Powell will say in his speech.
- US energy prices have risen to the highest levels since October 2022.
- The price of crude oil has been continuously rising since the end of June.
- The US Energy Information Administration said output will most likely fall further.
- The futures markets believe that policy rates for the middle to the end of the year have reached cyclical highs.
- US stock indices continue to fall this week.
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Sources: Bloomberg, Reuters
