The Federal Reserve’s minutes of their last meeting concluded that smaller interest rate increases should happen “soon.” This can only add fuel to increasing market excitement for the months ahead.
Echoing comments that several central bank officials have made over the past few weeks, the meeting summary pointed to smaller rate hikes coming. Markets widely expect the rate-setting Federal Open Market Committee to step down to a 0.5 percentage point, or 50 basis point, increase in December, following four straight 0.75 percentage point hikes.
"A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes stated. “The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important."
The minutes noted that the smaller raises would give policymakers an opportunity to evaluate the impact of the evolution of rate hikes. The central bank’s next interest rate decision is due on December 14.
As always, the minutes give markets more of a picture about where the central bank of the world’s largest economy is headed.
This suggestion of smaller rate rises to come certainly buoyed stock markets, although the immediate positive impact was muted somewhat by lighter than usual trading volumes because of Thanksgiving holiday.
The FOMC has been keen to stress that the fight against inflation is not over yet and we expect rate rises to continue well into 2023, but the slowing of the pace of the hikes will add fuel to increasing market excitement.
Ahead of the Fed minutes being published, I predicted that the year ahead promises to be much more positive for markets, after the turbulence of 2022. There are four main reasons: inflation peaking in most major economies, low valuations providing buying opportunities for investors, the growing digitalization of business models, and the peaking of the dollar’s strength.
The Federal Reserve won’t meet again until the next rate-setting meeting in mid-December, but as stock markets are forward-looking, these latest minutes will pretty much set the mood until the end of 2022.
London-born Nigel Green is founder and CEO of deVere Group. Following in his father’s footstep, he entered the financial services industry as a young adult. After working in the sector for 15 years in London, he subsequently spent several years operating within the international space, before launching deVere in 2002 with a single office in Hong Kong. Today, deVere is one of the world’s largest independent financial advisory organizations, doing business in 100 countries and with more than $12bn under advisement. It specializes global financial solutions to international, local mass affluent, and high-net-worth clients. In early 2017, it was announced that deVere would launch its own private bank. In addition, deVere also confirmed it has received its own investment banking license.
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