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Federal reserve to keep rates unchanged

The Fed Releases Timeline for Rate Increases, UK Inflation at the Highest Level in 10 Years & Retail Sales in the U.S. Disappoint

Markets jump as Fed releases timeline for rate increases

U.S. markets were trading with uncertainty on Wednesday prior to the latest Fed rate decision.  The major indices all moved higher once the Federal Reserve signaled a faster unwind of its bond-buying and multiple rate hikes for 2022.

With inflation in the United States rising to its highest level in a decade, Jerome Powell met the markets expectation and signaled a shift in the bank’s current policy stance.

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After months of viewing the rise in consumer prices as transitory, the Fed has been moved to acknowledge that this could be a longer lasting issue, than previously stated and monetary policy will need to be tightened.

Last week, the IMF issued a warning to the Federal Reserve, urging the bank to issue new policy guidance, and with recent CPI data running hotter than at any time since the early 1980s the Fed was basically forced to act to reign in inflation expectations.

Heading into the close of U.S. trading, the Dow was up 1.03%, the S&P 500 had increased by 1.61% and the NASDAQ was up 2.13%.

UK inflation rate climbs to 10-year high

Data released in the United Kingdom on Wednesday, showed that consumer prices had risen by their most in 10-years.

Figures from the Office for National Statistics reported that inflation in the UK climbed to 5.1% last month, easily surpassing the BOE’s 2% target.

November’s inflation rate also exceeded all forecasts, which had anticipated an increase of 4.7%, which would have been up 0.5% from October’ final figure.

💡 With an increased inflation what is likely to happen?
As inflation erodes the value of a country’s currency, people are incentivized to either spend their cash or move it somewhere where it’ll hold its value such as in long and short-term investments

The news of this comes as the number of COVID-19 cases in the UK climbed to their highest level on record, as Omicron continues to rapidly spread.

Thursday’s BOE policy decision will now be watched by markets even closer, as many believe the time has come for the bank to act.

GBPUSD hit its lowest level of the week, trading at 1.3171, with the FTSE 100 closing 0.66% lower.

Gold falls to 2-month low, as U.S. retail sales fall below expectations

Retail sales in the United States rose by less than expected in November, despite the thanksgiving holiday, and Black Friday sales.  Data from the Commerce Department showed that sales increased by 0.3% last month, lower than the 0.8% expected increase.

November’s decline in consumer spending comes after sales rose by 1.8% in October, prior to the discovery of the Omicron variant.

💡 The hard-hit holiday shoppers
Holiday shoppers have been hit hard with inflation and shortages. As speculators analyze what the pending implications that the new Omicron variant will have on the U.S economy. A strong consumer demand is faced with rising prices making it harder for people to keep up.

Many believe that the increase in consumer prices has impacted spending, with American’s now choosing to save instead.

XAUUSD fell to an intraday low of $1,753 on the news, its lowest level in 2 months.

“Stocks are bought not in fear but in hope. They are typically sold out of fear.”

– Justin Mamis

Eliman Dambell

Senior Market Analyst

 

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