May 30, 2023
Fed Preview | May 2023 Meeting
Hot Forex Review
Fundamental

Fed Preview | May 2023 Meeting

US Federal Reserve will hold its two-day meeting on Tuesday, May 2, and on May 3, Wednesday, we will have the announcement and Fed chair Powell’s press conference 30 minutes after that.

At the conclusion of the FOMC meeting, we expect the Federal Reserve Open Market Committee to raise the target range for the Fed funds rate by 25bp to 5.0%-5.25%. Since the market is already priced in the 25 bps rate hike, the day’s primary focus will be Committee guidance through the post-meeting statement. Any change in the statement’s tone about future decisions and outlook will be the main market driver. I believe the Committee will try to show that a more rate future rate hike in the June meeting isn’t the incumbent scenario; however, the next move is more likely to depend on data and decision effects that have been made till now. In addition, the balance sheet reduction is expected to continue at the same pace. Also, the overnight reverse repo facility will not see any changes to that program.

While I still think this week’s hike is the last in this cycle, but can see some chance of another 25bp increase in June. On top of that, in the press conference, Powell should emphasize that the inflation fight is not over yet, as recently published PCE price index data confirm the continuation of the inflationary crisis. Therefore, we must wait for this sentence to be repeated “The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook….” We remember that from June 2006 meeting.

Overall economic condition is weak; we have modest spending and production growth, unemployment at 3.5% is low, and inflation concerns still need to be solved. This mixed condition tells us that in line with the rate hike, data-depend guidance is most likely the Fed reaction, which should hold the pressure on the stock markets and support the US Dollar. However, the optimistic tone of the statement will pause the bears, on the other hand, which will end with a slow downward, but not fall. Good news will not be Bad news and more and vice versa! The market will have a muted reaction, and data will move the market from now on.

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