The Week Ahead

During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.

The rate decision from the US Federal Reserve Bank and the US CPI inflation report are the main events. Also, the UK CPI reading will be closely watched this week.

US CPI Report

The US CPI report is a central focus this week as it plays into the FED’s decision the day after the release. For November, economists expect headline CPI to edge down to 7.3% and core CPI to ease to 6%.

Since the October CPI readings came out a month ago, several Federal Reserve members have stressed that CPI data alone does not determine monetary policy.

The annual inflation rate in the US slowed for a fourth month to 7.7% in October of 2022, the lowest since January, and below market forecasts of 8%.

It compares with 8.2% in September. Compared to the previous month, the CPI rose 0.4%, the same as in September and below expectations of a higher 0.6% rate. The index for shelter contributed over half of the monthly all items increase, with the indexes for gasoline and food also increasing.

Still, figures continue to point to strong inflationary pressures and a broad price increase across the economy, mainly in the services sector while prices of goods have benefited from some improvements in supply chains

With US producer prices also showing signs of having peaked, markets are braced for the Fed to slow the pace of rate rises on Wednesday.

FED Rate Decision

The Federal Reserve may scale back the pace of its interest rate hikes already in December, Fed Chair Jerome Powell said on Wednesday in a speech at the Brookings Institution. “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.

The time for moderating the pace of rate increases may come as soon as the December meeting”. Still, Powell added that “terminal rate,” is likely to be “somewhat higher” than the 4.6% indicated by in the September projections.

The Federal Reserve raised the target range for the federal funds rate by 75bps to 3.75%-4% during its November 2022 meeting, marking a sixth consecutive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008.