YEREVAN (CoinChapter.com) – Federal Reserve officials released the latest Federal Open Market Committee (FOMC) meeting minutes on Jan 4, stating that higher interest rates will remain in place until more progress is made in curbing the runaway inflation.
FOMC meeting minutes confirmed interest rate hikes
In detail, according to the latest CPI data, core inflation stood at 7.1% in November. Officials at the FOMC meeting generally agreed that the hawkish policies will continue “unless inflation is on a sustained downward path to 2%.”
In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.
stated the minutes.
The officials also noted that the Fed would need to implement “flexibility and optionality” in regard to policy. Notably, the latest increase ended a streak of four consecutive three-quarter point rate hikes. It took the target range for the benchmark fed funds rate to 4.25%-4.5%, its highest level in 15 years.
Traders expect the central bank to approve a quarter-point increase at the next meeting, which concludes on Feb. 1, according to CME Group data. Meanwhile, the meeting members agreed that no interest rate cut is in the books for 2023.
Also read: Experts Ring Recession Bells for 2023 – Another Crash for Bitcoin?
Stocks tumble against the strengthening dollar.
The stock market took the news as a grim predictor and dropped 1% after the minutes’ release. In detail, interest rate hikes generally tend to give the dollar a bullish boost. As CoinChapter reported previously, the dollar index (DXY), a gauge of the Greenback’s value against a basket of 6 major currencies, jumped 1.2% on Jan 5 after the FOMC meeting minutes release.
Meanwhile, the DXY has an erratic inverse correlation with the stock market, as investors prefer to bet on the greenback instead of risk-on assets. The chart below illustrates the point and explains why the stocks could have more to lose in Q1 2023.
Wall Street experts agree on their bearish stock market predictions for H1 2023 but see reasons for optimism, possibly towards H2.
Wall Street expects more pain in H1 and a recovery in H2.
Comerica Wealth Management bank assessed that the stocks are likely to form a ‘double bottom’ before reaching the “true low.”
For a classic ‘double bottom’ to form, we look for the 3,500 range to act as the next level of major technical support for the S&P 500.
said the bank’s 2023 expectations report.
Banking giant JPMorgan agreed with the forecast adding that the market will “re-test” the lows of 2022 in H1, 2023. Moreover, as CoinChapter reported at the end of 2022, experts anticipate a recession in Q1 2023. David Zanoni, the author of “Margin of Safety Investing,” agreed and commented that the upcoming interest rate hikes are “likely to slow the economy in 2023.”
It is likely that higher rates and layoffs will have a snowball effect in the broader economy as demand for goods/services declines as consumers and companies cut back on spending due to higher borrowing costs and with more people out of work.
commented the expert.
Also read: Bitcoin Price Year End Prediction: Drop To $14K On The Cards.
“Higher interest rates typically lead to recessions as a part of the normal business cycles,” added Zanoni, citing previous crises of 2000 and 2008.
Conversely, Bruce Helmer, co-founder of Wealth Enhancement Group, saw “reason for optimism” ahead. Additionally, some stock market forecasts for 2023 see moderate improvement.
For example, Swiss investment bank UBS targets a year-end 2023 S&P 500 at 3900, i.e., near the current level. American global investment company KKR pinned it at 4150, or nearly 8% higher than the current level. Furthermore, research company CFRA expected a 2.9% gain, which would put the S&P500 over 3900.
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