Will the Fed repeat the rhetoric of other central banks?

Press Release: The penultimate meeting of the US Fed this year awaits us on Wednesday. Perhaps the most turbulent year not only for the markets, but also for the Fed, which for a long time did not admit that inflation could be the problem it is today. They now have to fight inflation even more aggressively, and we have already witnessed the third rate hike of 75 basis points. Equity indices are under severe pressure in response to poorer access to capital, which may not be far from over. In recent weeks, however, the markets have taken a short-term breather, which was a reflection of a solid earnings season above analysts' expectations, but also in recent days, one crucial moment that the markets are looking towards in the short term. This is the pivot of monetary policy tightening.

In recent weeks, other central banks of the G10 economies have met, and in the case of the ECB, the Bank of Canada or the Reserve Bank of Australia, we have seen a slight change in rhetoric that suggests that rate hikes will soon be over. There is absolutely nothing to be surprised about, because in addition to the fierce fight against inflation, the risk that higher rates will really break something in the economy is starting to grow, and the central banks don't want to dictate that. The economy has simply become accustomed to zero interest rates and it would be naive to think that the highest rates in the last 14 years will simply pass. That is why the markets are expecting so much the pivot, which is undoubtedly approaching, but the fight against inflation is far from over. At least not in the US.

Core inflation still hasn't peaked and rising prices in the services sector will be harder to shake off than goods prices, which are already on the way down. The Fed needs to be very mindful that once it signals a pivot, the dollar, stocks and bonds will start to rise and thus loosen financial conditions, which it far from needs now. However, the market is pushing him to do so again, and if the central bank allows, inflation will be eliminated for a very long time. From the recent statements of Fed members and the determination to fight inflation until it really begins to recede significantly, I would place confidence in maintaining rationality. The Fed can't afford a pivot yet, and if the markets expect one now, they're making a mistake and hitting a wall.

Above all, the beauty is that, except for a select few, no one really knows what will happen. There are many scenarios and the markets' reactions can always surprise. XTB will watch the Fed meeting live and its impact on the markets will be commented on live. You can watch the live broadcast <a href="https://cdn.shopify.com/s/files/1/1932/8043/files/200721_ODSTOUPENI_BEZ_UDANI_DUVODU__EN.pdf?v=1595428404" data-gt-href-en="https://en.notsofunnyany.com/">here</a>.