The risk sentiment has improved considerably in financial markets in the last two months, as central banks and particularly the FED prepare to slow rate hikes. The FED has delivered three 75 basis points (bps) hikes in the last three meetings while today they are expected to raise rates by 50 bps.

Although, as consumer inflation slows the FED might slow even further. Yesterday we saw the CPI (consumer price index) report slow to 7.1% year-on-year in November, from 7.7% in October. That would weaken the US Dollar further. Fedwatcher Nick Timiraos was out yesterday with his latest view on the FED and he says it remains on track to hike by 50 bps today, despite some light murmurs about a 25 bps hike.

That’s not a surprise but he talks about how the recently slowing inflation data could ‘complicate’ deliberations over the terminal high and how quickly to get there. “Tuesday’s inflation report is likely to intensify the officials’ debate over whether to further dial down the size of rate rises to a more traditional quarter percentage point at their subsequent gathering, Jan. 31-Feb. 1,” he writes.

US president Joe Biden made an appearance yesterday right after the consumer inflation report, welcoming the lower figures, which might be a nudge at Jerome Powell. Biden also noted that wages have gone up more than prices in the past several months.

US President Joe Biden Commenting on Inflation

• Inflation is coming down but is still too high
• Today’s inflation report is welcome news
• Prices are still too high but things are getting better
• Where is it written that America once again can’t lead the world in manufacturing?

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