To The Moon

Before making an educated guess on which direction (up or down or sideways) Market will react on 01 Feb afternoon; it is important to know where US economy stands currently. Right ?

US 2022 - 7 Interest hikes from Mar to Dec 2022

In 2022 alone, national interest rate has been adjusted 7 times with the last in Dec 2022. 

Currently interest stands at 4.50 %. The Fed has repeatedly sounded that there is room at the top for more hike/s where required to bring inflation under control.

US- Dec 2022 CPI

Dec 2022 CPI had registered another month of slow down. Is this a clear indication that the 7 interest rate hikes is beginning to do its job ? Think the reply is a resounding "Yes".

US - Dec 2022 PCE

Dec 2022 PCE just released recently is also pointing to a rise that is weaker than Nov’s, coming in at 5.0%. 

If you have read my previous posts you would’ve known that the Fed prefers to refer to PCE data over CPI for many reasons.

US - Dec 2022 Gross Domestic Product (GDP) 

Lastly, Dec 2022 Gross Domestic Product (GDP) is also registering a healthy 2.9% growth; despite a strong  / resilient Labour market. 

This is particularly important because should the Fed continues with interest hike; the current GDP is proof that US is able to weather further hikes.

In the short term it may cause a bit of turbulence in both (a) the Stock Market and (b)  Labour market in terms of short term unemployment rising. 

To this end, Mr Powell had indicated in the past that the Fed is willing to accept these fallout if it means curtailing runaway inflation. 

The 0.25% hike seems to be a done deal already given the above data set. 

Question is whether the Fed is willing to take a bold step to adjust interest by 0.5% instead. This would definitely get the job done in bringing inflation back to the targeted 2% within a shorter time frame instead of letting things drag out over a time period.

If only things are so straight forward and simple. 

The 2022 interest hikes have already caused a lot of economies in the world (particularly the less developed economies) a lot of hardship and turmoil in the local economy.

For whatever reason/s the other countries could not afford to adjust their national interest rate in tandem and in reaction to the Fed’s. 

As a result, they suffer all the side effects ranging from importing inflation into their economies, extreme fluctuations in their national currencies against the US Dollars, sudden drop in their stock exchanges as funds fled to safer havens etc…

The US being a default leader of the “free” world has both a duty and obligation to keep as much as possible the world in a “stable” situation in order that every country could find its way around the US interest hikes ripple effects.

While the Fed is non-political and does not have to be answerable to other world economies – it needs to work closely with the Biden Administration to ensure that its policies does not bring chaos and burden to the incumbent government.

If the interest announced is 0.25% as anticipated, Market sentiments would turn to Q4 2022 earnings  report being released daily to chart directions. 

However if interest hike is a “surprised” 0.5% - Market is likely to dip as this has definitely not been factored by market experts.

As to when the Fed will halt interest hike – think everyone is clear by now that the halt will come only when inflation returns to the ideal and universally accepted 2%.

Do you think Market will rise or fall today?

Do you think  that the Fed will halt or slow down interest hike?

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