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Federal Reserve Officials Anticipate A Less Hawkish Policy

Federal Reserve Officials Anticipate A Less Hawkish Policy

The Dow Jones 30 has had the best performance, despite being stagnant for a week, and is very close to a critical level, around 34,200

Recent comments from Federal Reserve officials and economic data have driven the market in recent days.

Overall, Fed officials have maintained an aggressive stance in the past week, with Bullard predicting that the Fed's terminal rate will be between 5% and 7%. With this comment, the 2/10 spread (the spread between the 2-year and 10-year bond yields) became the most negative on record, at -70 basis points, indicating that an economic recession is expected and that interest rates will not remain high for long.

Other statements made over the weekend were less aggressive, such as those made by Bostic, a voting member of the Monetary Policy Committee, who stated that he was leaning toward a 75bp hike at the next meeting and forecasted that future hikes would be between 75 and 100 bp.

In summary, Fed officials are expected to be less hawkish in their next decisions, which is how the market interprets it, at least in the fixed income market, where yields are resistant to further increases.

Economic data also contributes to this idea of a less aggressive Federal Reserve. The figures show a significant slowdown in the economy; existing home sales fell for the ninth consecutive month in October, with a 28.4% drop compared to the same date last year.

These very negative figures for the real estate market demonstrate that the Fed's restrictive monetary policy is already having an effect and may be extending to the labor market, which is the key data that the Federal Reserve will consider in slowing the rate of rate hikes.

All this is having a positive impact on the stock markets; lower interest rates than previously expected are well received by the markets, although the rate of progress seems to have slowed in recent days for technical reasons.

The Dow Jones 30 has had the best performance, despite being stagnant for a week, and is very close to a critical level, around 34,200, above which the upward momentum would gain strength.

The US dollar, which has lost ground in recent weeks, is also consolidating. It rose slightly on Friday, but market positioning has shifted to net short for the first time since July 2021, indicating that real money and many institutional investors expect the US currency to continue depreciating.

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Sources: Bloomberg, Reuters

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