Fed Officials Agree on No Rate Cuts for the year 2023

Last year, the continuous hikes in interest rates by the US Federal Reserve significantly affected the US equity market and crypto market. Meanwhile, recent reports indicate that the FED's hawkish stance might continue in 2023 as well.

On January 04, the Federal Reserve released the minutes of its December monetary policy meeting. The minutes confirm the anticipation that the central bank will continue to raise interest rates this year as well.

The minutes highlighted that officials continue to believe that ongoing rate hikes are necessary to achieve the Fed's dual goals of maximum employment and price stability.

The Fed stated that the pace of future rate hikes will be determined by the continuous tightening of monetary policy, the lags with which policy influences economic activity & inflation, and economic & financial developments.

FED’s Hawkish Stance

From March 2022, the FED continued its hawkish stance by increasing interest rates by 25 basis points. Following that, the Fed never changed its stance on easing monetary policy until December 2022, when it announced a 50 basis points increase in interest rates.

At the time of the announcement, experts predicted that the Fed would modify its stance and lower interest rates further at future FOMC meetings. However, it appears that the tables have turned for the US market following the release of the FED's December minutes.

Does this indicate a sustained downward inflation path?

FED officials agree that they want to see progressive evidence of a sustained downward trend for inflation. The policymakers also stated that the FOMC's efforts to restore price stability will be hampered if markets begin to loosen financial conditions, especially if they are enticed by the FED's reaction to inflation statistics.

Of the 19 FED officials in total, 17 of them agreed that they anticipate the rate to increase by 5% in 2023. The officials also came to the conclusion that they are attempting to find a balance between the risks of doing too little and raising rates too quickly. According to them, the former risk may result in an increase in inflation, while the latter may result in an unjustified fall in economic activity.

In addition, the US Federal Reserve's next monetary policy meeting is scheduled for January 31-February 1. The FedWatch Tool at CME Group currently indicates a 69.2 percent possibility of a 25 basis point rate hike and a 30.8 percent chance of a 50 basis point rate hike.

What are your thoughts on the recent release of the Federal Reserve's December minutes? Do you believe the Fed will alter its stance at the upcoming FOMC meeting? Please share your valuable thoughts in the comment section below.

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