Fed preview: Loose Forward Guidance is not enough to save the market

Fed preview: Loose Forward Guidance is not enough to save the market

Although after an expected increase of 75 basis points on Wednesday, the markets mainly become slowed down in the interest rate increases in December, according to analysts, retailers should not keep their breath away in order to achieve a gentle landing.

Investors seem confident that the Federal Reserve is ready to continue the interest rate increases this week. On Tuesday afternoon in New York, the futures markets priced in a probability of 87.5 % for an increase of 75 basis points when the Federal Open Market Committee opened its two-day political meeting Data from the CME Group .

The markets were split a month ago, with 43.5 % expecting an increase of 50 basis points and 56.5 % 75 basis points.

"While an increase seems to be stipulated by 75 basis points tomorrow, the messages are what the investors are interested in," said Craig Erlam, a senior market analyst at Oanda. "Despite the inflation that remains on a breathtaking level, the conviction that the central bank will signal the desire to loosen the brake in the following sessions starts with an increase of 50 basis points in December."

shares and cryptos acted on Tuesday after the publication of a low unexpectedly positive report could continue money policy steps.

If the Fed does not indicate a December pivot, according to Tom Essaye, founder of Sevens Report Research, the markets will react negatively, if not extremely.

“The market is so overwhelmed at short notice that this result is not worse

currently expected should lead to a slight to modest decline in shares - in the worst case by 1 %, ”said Essaye.“ We assume that growth will continue to lag behind, while the defensive sectors and the value cut relatively above average. ”

In the event of persistent inflation, disappointing profits and reversing return curves, a recession could be imminent. The risks of aggressive tightening could now be greater than with a gradual approach, said Erlam, and the economy has to cope with a lot of tightening if and if interest rates reach 3.75 % to 4 % this week.

"A moderate signal could be an exciting moment for stocks of stocks that you have longed for all year round, but that doesn't mean that it will be easy from here," said Erlam. "There is still the economic slump and a possible global recession with which you have to finish, not to mention a very insecure winter in Europe."

Even if the Fed signals a moderate shift of its forward guidance on Wednesday, it is still too early to end the bear cycle, said essaye.

"If the Fed 50 points of the basis [Basis Points] In December we have to consider that this is not the Fed pivot that we need to mark a floor. Even if the market achieves the desired moderate result, there will be no all-clear for the shares, regardless of a subsequent rally," added essaye.

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The article Fed Preview: Dovish Forward Guidance Not Enough to Save the Market is not a financial advice.