- Interest rates– The US Federal Reserve (Fed) has increased its benchmark interest rate yet again, but this time by a modest 25bps to a range of 4.5% - 4.75%. This was in line with market expectation and was also being flagged out in the previous few speeches given by the board members. There was no dot plot graph being provided as it is published every quarter. The next dot plot graph will be available in the March meeting.
- Inflation remains elevated– Despite welcome data illustrating that the growth in recent months is starting to taper off, inflation still remains well above the targeted goal of 2%. (December Total PCE rose by 5% Y.o.Y; 0.5% M.o.M while core PCE which excludes food and energy prices rose by 4.4% Y.o.Y; 0.3% M.o.M). The Fed will require more substantial evidence that inflation is trending down sustainably before it could be confident in making any changes to its polices.
- Guidance– In terms of guidance, Fed chairman Jerome Powell said that there will be a couple of more rate hikes before reaching a level which the central bank deems is sufficiently restrictive. This, coupled with the indication of shifting to a slower pace, means that we will be facing a couple more similar-scale hikes in upcoming meetings and interest rates could be reaching a peak soon.
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