Octa's market snapshot: The Fed is stuck between recession and high inflation

On 30 April – 1 May, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve (Fed) will meet to decide on key interest rates in the U.S. economy. The Fed is expected to leave rates unchanged.
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  • The Fed is expected to leave rates unchanged at their meeting on 30 April – 1 May.
  • The BEA report showed that GDP growth slowed to 1.6% in the first quarter, well below expectations.
  • Fed's preferred inflation rose for the third month in a row. The released GDP and Fed's preferred inflation data sets are hawkish, which means the U.S. dollar will likely continue to strengthen.

On 30 April – 1 May, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve will meet to decide on key interest rates in the U.S. economy. The Fed is expected to leave rates unchanged.

Since the beginning of this year, the U.S. Federal Reserve has been broadcasting that key interest rates have peaked and are trending downwards. However, the tone of the accompanying rhetoric has changed in favour of tighter monetary policy. The reason for this is inflation, which has no plans to decline. Besides, we also see a slowdown in the U.S. economic growth.

On 25 April, the U.S. Bureau of Economic Analysis (BEA) reported on GDP dynamics (Advance Estimate)—GDP growth slowed to a 1.6% rate in the first quarter, well below expectations. The next day, the BEA released the PCE index—a measure of inflation closely monitored by the Federal Reserve. It showed that the prices rose by 0.3% from February to March, the same as in the previous month. The index rose faster than the Fed's 2% inflation target in the third straight month. Thus, the annualised price growth rate was 2.7% in March compared to 2.5% in February.

'Weak U.S. economic growth and accelerating inflation are pushing back the likelihood of a key rate cut in 2024,' said Kar Yong Ang, Octa Broker financial market analyst. 'In fact, the FOMC does not have any positive factors at the moment', he added.

The released GDP and Fed's preferred inflation data sets a hawkish tone for the upcoming meeting, which means the USD will likely continue strengthening against all major currencies. USDJPY may rise above 160.00 by the end of this week.

 

Förordning: CySEC (Cyprus), FSCA (South Africa)
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