The stock market has gone in just a few weeks from a pronounced stress on the Fed’s intentions in 2023 to a phase of perhaps a little overconfidence. We still remember the falcon of the PoweredJames Bullard, who spoke of the need for the US central bank to bring the terminal rate between 5% and 7% to combat the strongest wave of inflation since the 1980s. After the inflation publications in December and January which confirm a little more that the inflation peak has been reached in the United States (6 consecutive months of falling inflation after a peak of more than 9%, to now go to 6.5%), the speech of last week of this same Bullard was much less aggressive.
He said that “if” the Fed were to go beyond 5% on rates (current range 4.25%-4.50%), then it had to get there as soon as possible, the “if” made this possibility less likely and therefore gave a general discourse a less aggressive tone. Between US inflation back to 6.5% and slightly less aggressive speeches by Fed members, the market is now convinced that the monetary institution will only raise its rate by 0.25% in early February and perhaps even more than 0.25% in March. This would give a final rate slightly below 5% (range 4.75%-5%).
Stocks: The Fed could hike much more sharply than expected, JPMorgan warns
And this is where perhaps it is worth keeping an eye out for the early February decision. If the Fed decides that the rate band should move slightly above 5%, that carries the risk of another 0.5% rate hike in February, followed by a final 0.25% hike in March. And that scenario is almost completely out of the markets at this point.
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We will therefore have to remain vigilant on the numerous interventions by Fed members this week. Between Tuesday and Friday, 11 speeches are scheduled. Any intervention that leaves the door open to a rate hike of just over 5% would lead to a further rise in the dollar in the short term, to a temporary recovery in US short-term rates and therefore probably to a new phase of weakness/ stock market consolidation. .
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