Wall Street moves seem to suggest that investors could feel at ease towards the central bank’s actions. Meanwhile, the Federal Reserve (the Fed) carries on with its inflation-fighting act. Market expects the Fed to minimize its hiking rates pace. Currently, the Fed eased the previous year’s high interest rate increase. Plus, the most recent data shows that there are chances for a soft landing in the US economy that has improved. In December last year, the consumer price index or (CPI) inflation plunged to 6.5%. This actually says that investors could feel at ease towards the Fed. In other words, Wall Street has more chances in the market.
The recent analysis from Savita Subramanian, a quantitative strategist at BOA, said that fourth-quarter corporate earnings were larger. It seems like both the Fed and the market move in unison. Investors actually have a fear of uncertainty. However, they feel at ease for the next Fed policy act decision. They feel certain that the central bank will announce a quarter-point hike. It does not mean that things will go smoothly. The Fed remains hawkish. Labor market for instance continues to get stronger. The unemployment rate dropped as low as 3.5%. Meanwhile the wage growth is high.
Although inflation is slowing down, investors should be aware that price increases might be higher than expected. Gargi Chaudhuri, head of iShares Investment Strategy at Blackrock, argued that investors misread inflation outlook. The same misread they did last year in July. He even stated that “we’ve seen this movie before”. Chaudhuri added that recession will happen in the U.S. around the second half of 2023. It means that the Fed’s meeting might generate potential market disappointment, added Chirstian Scherrmann from DWS Group.
