Analysis of the Fed Watch Tool suggests that there is an 80% chance of a 42 to 45 bps rate increase in December 2022 due to a softer-than-expected inflation report.
A new finding by the financial information website Safetradebinaryoptions analyzes the market reaction following the CPI (Consumer Price Index) report.
Saqib Iqbal, an author at Safetradebinaryoptions, commented on the findings:
“The Fed is expected to caution the market that underlying inflation is three times higher than the goal — and it’s persistent, suggesting that part of the USD selloff and surge in risk appetite may be misguided.”
On November 10th, the Bureau of Labor Statistics stated that October's consumer price index (CPI) was lower than predicted, and consequently, US financial markets rose on the assumption that the peak of inflation had passed.
The CPI report gave hope that the steepest price increases in decades are finally slowing, allowing US Federal Reserve policymakers to ease up on their aggressive tightening effort.
The official data shows that a 50-basis-point increase in December is significantly more plausible than a 75-basis-point increase, reducing the rate divergence between the European Central Bank and the Bank of England.
The report’s findings saw positive results for many players:
S&P 500 gained more than 4%,
Dow Jones jumped 2.7% for the day, while
NASDAQ gained over 5%.
BTC went above $17000.
Gold climbed to $1740.
GBP/USD climbed to 1.17.
The EUR/USD surged to 1.01.
But there was one loser: the Dollar Spot Index fell by almost 2%, the largest decline since the index's inception in 2005.
Market investors have gotten a ray of hope that interest rates will not increase over 5%, as previously projected by the market. As a result, the dollar dipped, and the stock market rose.
Not everyone shares in the optimism generated by the report. Some Fed officials, including Chairman Jerome Powell, have taken a more hawkish approach, stating that US monetary policy must stay tight for some time to keep inflation under control.
Powell stated that robust consumer demand, a tight labor market, and persistent service pricing pressure in the United States may necessitate the central bank raising rates to "slightly higher levels" than market investors had anticipated in 2023.
While this is most likely due to a shift in tone from certain Fed officials, it is clear that market expectations for monetary policy have shifted slightly, as evidenced by the Fed Watch Tool.