- At the end of a week that saw recession fears resurface and a higher-than-expected inflation reading just a few days before the Fed's decision, stock traders took risk off the table.
- The S&P 500 extended losses in the final hour of trading after trading sideways for the majority of the session. Treasury 10-year yields have risen to near 3.6%. The dollar wavered.
- Short-term inflation expectations in the US unexpectedly fell to their lowest level in more than a year, and consumer sentiment improved, aided by lower gasoline prices. In a separate report, producer prices rose more than expected in November, driven by services, highlighting the stickiness of inflationary pressures that supports Fed interest-rate increases through 2023.
- In the run-up to the Fed meeting, all eyes will be on Tuesday's consumer inflation print, which is expected to show that inflation, while still far too high, has slowed. US central bankers, including chair Jerome Powell, have signalled a slowing in the pace of rate hikes while stressing that borrowing costs must continue to rise and remain restrictive for some time in order to beat inflation.
- According to the federal open market committee's median projection, the benchmark will peak at 4.9% in 2023, reflecting a 4.75%-5% target range, up from 4.6% in September. That would come as a surprise to investors, who currently expect rates to be cut by a half percentage point in the second half of next year, with rates peaking around 4.9%. Currently, the range is between 3.75% and 4%.
- While many investors are eager for the Fed to deliver its final rate hike, BoA strategists believe they should be cautious while inflation remains high.