Yesterday, the Fed released the widely awaited minutes of its November meeting where it had raised rates by 75 basis points. The minutes show that FOMC members favor smaller rate hikes going forward.
The minutes said, “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” They added, “A slower pace in these circumstances would better allow the Committee to assess progress toward its goals of maximum employment and price stability.”
Notably, while the US inflation has come off from multi-decade highs and rose at an annualized pace of 7.7% in October, it is still away above the 2% that the Fed targets.
The Fed’s rate hikes are also taking a toll on the US economy. The minutes stated, “recent data suggested that economic activity in the near term appeared likely to expand at a pace below its trend growth rate.”
The minutes also talked about the lag in monetary policy action. They stated, “Participants discussed the length of the lags in the response of the economy to monetary policy actions, taking into account historical experience and the various estimates of timing relationships provided in economic research, as well as the high degree of uncertainty involved in applying the evidence on lags to the current situation.”
Fed Might Go Slow on Rate Hikes
Powell’s comments after the November FOMC meeting were more hawkish than expected. Powell did however provide a ray of hope and said that the Fed might slow down the pace of hikes. He said, “So that time is coming, and it may come as soon as the next meeting or the one after that. No decision has been made.”
While trades expect the US Central Bank to raise rates by 50-basis points in December and another 50-basis points in February, Wharton professor Jeremy Siegel predicts that the Fed would pause its rate hikes after a 50-basis point rate hike in December. He also said that markets would not retest their 2022 lows and can deliver 30% returns over the next two years. There is a guide on how to buy stocks with a regulated broker.
On multiple occasions, Powell has said that the rate hikes might lead to recession. He also however emphasized that the Fed is not trying to force one. While recession impacts most sectors of the economy, some of the investments are largely recession-proof.
US Economic Data Has Been Mixed Lately
US economic data has been quite mixed lately. The October nonfarm payroll data was way ahead of the estimates. Retail sales data for the month also looked encouraging. Durable goods orders also rose 1% in the month which was better than expected. However, the weekly jobless claims have now come in higher than expected.
Also, the flash November composite PMI has fallen to 46.3, which is a two-and-a-half-year low. The economic slowdown has been deepening globally. Chinese economy looks set to slow down even further amid the surge in new COVID cases in the country.
Economists have lowered India’s growth prospects also. Indian economy is however still among the bright spots amid the global economic turmoil.
Indian stocks are outperforming global markets this year amid a strong domestic economy. We have a guide on how beginners can buy stocks in India with a regulated broker.
Markets Now Await December Fed Meeting
Markets now await the next Fed meeting which is scheduled for December. The Fed has been raising rates to tame inflation. While many economists believe that inflation would drop considerably next year, Bill Ackman of Pershing Square Holdings has a contrarian view and believes that inflation is not coming down anytime soon.
On the other side of the spectrum is Cathie Wood who believes that we’re headed for deflation. Elon Musk and Jeffrey Gundlach have echoed her views. Gundlach also believes that bonds are an attractive investment option amid the current macro environment. There is a list of deflationary cryptocurrency tokens.
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