Focus on Fed's guidance, scaling back future rate hikes: Expert

ANKARA

All focus is on the Federal Reserve's two-day key meeting that will be concluded Wednesday.

Investors await to see if the central bank will signal to take its foot off the throttle on future rate hikes.

"The key will be what if any guidance policymakers will provide in the Federal Open Market Committee (FMOC) statement and Chair Jerome Powell’s press conference regarding scaling back future rate increases," according to Mark Zandi, chief economist at Moody's Analytics, who spoke to Anadolu Agency via email.

The FOMC is expected to increase the federal funds rate by 75 basis points to the target range of 3.75% - 4% after the Fed's benchmark interest rate has been raised by a total of 300 points since March to tame record inflation that is still hovering around its highest level in more than 40 years.

The probability of a rate hike of 75 basis points stands above 80%, according to the FedWatch Tool provided by US-based global markets company Chicago Mercantile Exchange Group, while the probability of a hike of 100 basis points is below 20%.

US annual consumer inflation came in at 8.2% in September, slightly down from the 8.3% yearly gain in August; while producer inflation rose 8.5%, slowing from August's 8.7% increase.

Both numbers are a sharp decline from record figures recorded earlier this year.

While annual consumer prices posted a 9.1% gain in June, the largest 12-month increase since November 1981, producer prices saw their largest annual jump since a record 11.6% gain in March.

Although the Fed could signal a scaling back from future hikes in its attempt to tame inflation, it is not expected to put a stop to rate increases this year.

"Investors currently anticipate another 50 basis points of hike in the funds rate target in December, and another 25 basis points in January, and then for the Fed to pause in its rate hikes to gauge the impact of the higher rates on the economy and inflation," said Zandi.

The Fed has adopted an aggressive monetary tightening policy while FOMC officials have been very vocal about their hawkish stance in recent months.

The central bank's monetary tightening cycle has been worrying to economists that it may push the world's largest economy into recession next year, while US stocks have been plummeting in recent months, except in October.

With hopes that the Fed could signal it will take its foot off the gas for future hikes, the Dow Jones gained around 14% in October -- its best monthly record since 1976. The S&P 500 and the Nasdaq rose 8% and 4%, respectively, last month.

Zandi emphasized that if the Fed determines a rate hike of 50 basis points in December and an additional 25 basis points in January is "sufficient to quell inflation," the odds are better that the economy will avoid a recession.

"However, if the Fed decides that even more rate hikes are necessary later next year, then the economy is likely to suffer a recession, probably in the second half of 2023," he added.