- The FOMC minutes will determine the future course of interest rates.
- Markets are already pricing in rate reductions by the end of 2023.
- The Fed will start easing its monetary tightening path when the jobs market weakens.
Major Equity futures prices crawled higher on Wednesday while the dollar fell. Investors are eagerly awaiting the Federal Reserve’s meeting minutes to determine the future course of interest rates.
The minutes from the Fed’s December meeting will be made public later in the day on Wednesday. The Fed warned earlier that rates might need to stay higher for longer. Investors will analyze the minutes to determine whether further tightening of the monetary policy is likely.
When raising interest rates by 50 basis points last month, the US central bank noted that the terminal rates might need to stay higher for longer to combat inflation.
However, markets are already pricing in rate reductions by the end of 2023. Fed fund futures suggest a range of 4.25% to 4.5% by December.
This week, investors will better understand the American labor market thanks to several scheduled data points, which will all come together in the jobs report on Friday. One of the crucial factors needed to persuade the Fed to start easing its monetary tightening path is a weakening jobs market.
Data on US payrolls is anticipated to demonstrate that the labor market is still tight. The Fed aims to lower wage growth. A surprise loosening could see equities climb as it would support a Fed pivot.
The slight surge on Wednesday comes after equities fell; Tesla shares fell 12.2% after it missed Wall Street expectations for quarterly deliveries. Apple Inc., the company that makes iPhones, fell 3.7% to its lowest level since June 2021 due to a rating cut brought on by Chinese production curbs.
Unexpectedly, gains in nonresidential structures helped boost US construction spending in November, while rising mortgage rates continued to negatively impact the development of single-family homes.
The housing market is being choked off by the Federal Reserve’s fight against inflation, which has resulted in the fastest cycle of interest rate increases since the 1980s. Homebuilding and sales have collapsed.
Risk sentiment has recently gone down, causing investors to dump equities as major economies show signs of weakness. Data revealed that China’s factory activity declined at a quicker pace in December. Rising COVID-19 infections interrupted production and weighed on demand.