Waiting for the Eighth and Final FOMC Meeting of 2023

December 12, 2023

The federal funds rate target was last increased in July, and a likely announcement tomorrow to leave the rate unchanged at 5.25/5.50% will extend past a half year the cresting point. In more monetary policy cycles than not, the interval between a final rate increase and the first cut of an ensuing cycle of rate reductions has not exceeded a half year by much. Despite repeated rhetorical efforts by Fed officials to squelch speculation about a near-term rate cut, investors continue to chomp at that bit. Moreover, December meetings of the FOMC tend to attract high anticipations, since staff forecasts are updated then and in light of numerous times when market-moving signals occurred in that month. The table below shows key vital market signs at the time of FOMC meetings since mid-2004.

	EUR/$	$/JPY	10Y, %	DJIA	Oil, $
06/30/04	1.2173	109.44	4.63	10396	37.95
06/30/05	1.2090	110.89	3.96	10370	57.00
06/29/06	1.2527	116.07	5.20	11077	73.41
06/28/07	1.3452	123.17	5.10	13456	69.82
08/07/07	1.3749	118.55	4.73	13510	72.27
09/18/07	1.3888	115.75	4.51	13475	81.42
10/31/07	1.4458	115.28	4.42	13873	93.59
12/11/07	1.4682	111.49	4.11	13645	89.78
01/30/08	1.4792	107.31	3.70	12454	91.70
03/18/08	1.5786	98.73	3.41	12257	107.53
04/30/08	1.5562	104.58	3.83	12953	111.54
06/25/08	1.5568	108.37	4.18	11837	133.62
08/05/08	1.5445	108.42	3.97	11484	119.82
09/16/08	1.4144	105.16	3.36	10936	91.18
10/08/08	1.3625	99.87	3.50	9447	87.02
10/29/08	1.2933	97.15	3.81	9145	67.38
12/16/08	1.3790	90.14	2.52	8687	44.14
01/28/09	1.3253	90.01	2.61	8356	42.92
03/18/09	1.3115	98.13	2.94	7340	47.73
04/29/09	1.3331	97.06	3.02	8194	51.05
06/24/09	1.3984	95.43	3.59	8373	68.76
08/12/09	1.4221	96.17	3.71	9366	70.64
09/23/09	1.4779	91.50	3.50	9859	69.13
11/04/09	1.4884	90.75	3.51	9896	80.66
12/16/09	1.4542	89.78	3.56	10478	73.14
01/27/10	1.4045	89.49	3.61	10148	73.31
03/16/10	1.3756	90.64	3.67	10645	81.45
04/28/10	1.3157	94.10	3.75	11043	82.57
06/23/10	1.2284	90.12	3.13	10307	76.50
08/10/10	1.3107	85.85	2.81	10605	79.94
09/21/10	1.3132	85.21	2.66	10747	73.05
11/03/10	1.4059	81.35	2.53	11174	84.59
12/14/10	1.3423	83.37	3.38	11497	88.47
01/26/11	1.3658	82.55	3.41	12001	87.36
03/15/11	1.3969	81.04	3.29	11815	98.09
04/27/11	1.4665	82.63	3.36	12612	112.48
06/22/11	1.4392	80.12	2.97	12175	94.87
08/09/11	1.4234	77.09	2.36	10993	81.76
09/21/11	1.3778	76.34	1.93	11377	86.74
11/02/11	1.3724	78.11	2.03	11805	92.77
12/13/11	1.3067	77.92	1.98	12130	100.20
01/25/12	1.3027	77.96	1.97	12670	98.85
03/13/12	1.3096	82.76	2.08	13044	106.34
04/25/12	1.3226	81.37	1.97	13096	104.13
06/20/12	1.2693	79.28	1.66	12837	83.63
08/01/12	1.2300	78.10	1.49	13028	88.98
09/13/12	1.2895	77.43	1.72	13342	97.60
10/24/12	1.2948	79.75	1.77	13115	85.72
12/12/12	1.3082	83.24	1.70	13325	87.13
01/30/13	1.3584	91.16	2.02	13949	97.63
03/20/13	1.2948	95.65	1.94	14497	92.82
05/01/13	1.3195	97.48	1.62	14740	90.47
06/19/13	1.3364	95.76	2.23	15304	98.38
07/31/13	1.3301	97.92	2.67	15565	105.63
09/18/13	1.3363	98.28	2.76	15606	107.01
10/30/13	1.3764	98.18	2.48	15660	97.42
12/18/13	1.3696	103.81	2.89	16198	98.06
01/29/14	1.3651	102.13	2.73	15719	97.23
03/19/14	1.3918	101.75	2.71	16335	99.96
04/30/14	1.3868	102.11	2.66	16553	99.52
06/18/14	1.3584	101.93	2.61	16892	106.12
07/30/14	1.3372	102.84	2.51	16878	101.45
08/17/14	1.2961	107.60	2.57	17151	94.05
10/29/14	1.2677	108.40	2.33	16956	82.51
12/17/14	1.2409	117.58	2.11	17201	57.85
01/28/15	1.1337	117.77	1.78	17457	44.75
03/18/15	1.0637	120.98	2.05	17733	42.49
04/29/15	1.1164	118.67	2.05	18039	59.16
06/17/15	1.1255	124.22	2.39	17862	59.12
07/29/15	1.1073	123.61	2.29	17720	49.17
09/17/15 10/28/15	1.1334 1.1081	120.86 120.50	2.26 2.07	16778 17687	47.01 45.83
12/16/15 01/27/16 03/16/16 04/27/16 06/14/16 07/27/16 09/21/16 11/02/16 12/14/16 02/01/17 03/15/17 05/03/17 06/14/17 07/25/17 09/20/17 11/01/17 12/13/17 01/31/18 03/21/18 05/02/18 06/13/18 08/01/18 09/26/18 11/08/18 12/19/18 01/30/19 03/20/19 05/01/19 06/19/19 07/31/19 09/18/19 10/30/19 12/11/19 01/29/20 03/03/20 03/15/20 03/23/20 04/29/20 06/10/20 07/29/20 09/16/20 11/05/20 12/16/20 01/27/21 03/17/21 04/28/21 06/16/21 07/28/21 09/22/21 11/03/21 12/15/21 01/26/22 03/16/22 05/04/22 06/15/22 07/27/22 09/21/22 11/02/22 12/14/22 02/01/23 03/22/23 05/03/23 06/14/23 07/26/23 09/20/23 11/01/23 12/12/23	1.0956 1.0874 1.1089 1.1339 1.1205 1.0998 1.1160 1.1099 1.0641 1.0741 1.0638 1.0910 1.1149 1.1735 1.2010 1.1631 1.1815 1.2424 1.2271 1.1963 1.1788 1.1668 1.1765 1.1400 1.1420 1.1415 1.1355 1.1244 1.1217 1.1132 1.1066 1.1117 1.1112 1.1002 1.1179 1.1087 1.0697 1.0859 1.1367 1.1787 1.1824 1.1814 1.2174 1.2115 1.1908 1.2071 1.2126 1.1812 1.1722 1.1581 1.1255 1.1287 1.0983 1.0536 1.0438 1.0129 0.9884 0.9884 1.o686 1.0988 1.0792 1.1047 1.0860 1.1065 1.0672 1.0563 1.0789	121.72 118.48 113.70 111.37 106.15 105.65 100.84 103.33 115.37 113.52 114.48 112.47 111.55 111.17 111.34 113.91 112.58 109.31 106.27 109.91 110.38 111.69 112.94 113.88 112.26 109.55 111.42 111.17 108.36 108.59 108.16 108.89 108.62 109.14 107.21 108.33 111.26 106.73 107.24 104.84 105.00 103.68 103.65 104.07 109.27 108.80 109.97 110.09 109.23 114.01 113.98 114.36 118.62 130.10 133.82 137.31 144.08 146.93 134.86 128.93 132.57 135.22 139.38 140.82 148.06 150.87 145.66	2.29 2.02 1.99 1.89 1.62 1.53 1.70 1.78 2.45 2.49 2.57 2.30 2.13 2.29 2.24 2.35 2.34 2.73 2.89 2.97 2.96 2.99 3.08 3.23 2.81 2.72 2.57 2.48 2.08 2.02 1.75 1.80 1.80 1.61 1.01 1.01 0.81 0.61 0.77 0.59 0.67 0.77 0.91 1.01 1.66 1.62 1.49 1.25 1.31 1.56 1.45 1.78 2.19 2.98 3.34 2.77 3.56 4.03 3.51 3.41 3.54 3.37 3.79 3.89 4.35 4.79 4.20	17583 16002 17217 18013 17675 18461 18151 17989 19915 19890 20885 20920 21375 21711 22376 23405 24585 26259 24839 24095 25309 25310 26543 26195 23881 24841 25727 26624 26452 27210 27048 27067 27877 28833 25917 23185 18592 24667 27169 26467 28196 28418 30,125 30,554 32,868 33,908 34,251 34,938 34,279 35,894 35,493 34,594 33,726 33,242 30,806 31,846 30,850 32,524 34,175 34,093 32,466 33,689 34,108 35,418 34,553 33,226 36,541	35.95 30.85 37.79 44.89 48.29 41.91 43.44 45.18 51.83 53.33 48.43 47.96 44.71 48.75 50.55 54.24 56.60 64.41 65.00 67.57 66.77 67.62 71.68 60.93 47.80 54.51 59.48 63.38 53.65 58.48 58.16 54.60 58.68 53.52 47.18 31.73 23.36 15.30 39.05 41.22 40.00 38.84 47.77 52.81 64.30 63.70 72.32 74.25 71.94 81.14 70.39 87.40 95.70 107.71 116.24 97.36 83.70 88.57 77.56 76.80 70.32 68.70 69.38 78.93 90.28 82.86 68.69

As 2023 draws to a close, financial markets like what they see from the U.S. economy, even as opinion polls continue to reflect considerably lower marks given by U.S. voters for the Biden Administration’s economic policy performance. Today’s release of U.S. consumer prices produced results aligned with expectations. Inflation fell to a 5-month low of 3.1% in November, down from 3.7% in both August and September and 9.1% in mid-2022. Core inflation of 4.0% matched October’s near two-year low and was down from from 4.8% level that monetary officials were looking at when they last tightened policy. Expected U.S. inflation has slowed to a 31-year high. Not only has price deceleration been achieved without a forced recession, U.S. growth in jobs and GDP relative to growth in other widely watched economies has proven to be more resilient than usual. After surpassing 2.0% at an annualized rate in each of the prior four quarters, U.S. real GDP growth accelerated to a 5.2% quarter-on-quarter pace in 3Q 2023. Non-farm payroll employment increased by 204k on average during September, October and November. GDP last quarter contracted 0.7% and 0.1% (not annualized) in Japan and Euroland, but contrast. Year-on-year U.S. GDP growth in 3Q of 3.0% was twice as much as 1.5% in Japan’s case. A starker advantage was achieved versus the euro area, where GDP was unchanged from its year-earlier level.

It would be surprising for Chairman Powell to dangle the possibility of a rate cut next quarter. Resilient U.S. growth offers the luxury to not rush such a move, and it is widely felt that the drop of inflation from current levels to the 2% target will be a much slower process than price deceleration over the past 18 months. But investors may not be crushed if the message remains hawkish, since confidence in Fed forecasts has taken several hits lately. Monetary officials initially thought the rise of inflation would be short-lived and then understated the rate of price deceleration. Powell will convey the policy path that they currently expect is most likely, but the actual Fed policy path will inevitably conform to evolving information.

At today’s intra-day high, the Dow Jones Industrials Average was within 1% of it all-time peak hit very early in 2022. The 10-year Treasury yield of 4.24% now is down from a 52-week high of 5.02% touched just two months ago. The forces that have driven these shifts have also taken some steam out of the dollar, which over the past month has fallen back about 4% against the yen, around 2% versus the sterling and on a weighted basis, and 1% vis-a-vis the euro.

The dollar has relinquished growth in spite of some unsettling economic news from other countries such as sub-zero PPI and CPI inflation in China, an 11-year low in Australian business confidence, British wage growth above 7.0%, and still depressed readings for investor perceptions of current economic conditions in Germany and Euroland according to today’s ZEW Institute release. An inflection point in the monetary policy cycles around the world was also underscored today by decisions today to leave central bank interest rates unchanged in India at 6.5% and in Pakistan at 22.0%. India’s repo rate was last raised in February 2023.

Tags: FOMC preview

This entry was posted on Tuesday, December 12th, 2023 at 1:53 pm and is filed under New Overnight Developments Abroad - Daily Update. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Comments are closed.

Currency Thoughts

Waiting for the Eighth and Final FOMC Meeting of 2023

Subscribe to RSS Feed

Calendar

Archives

Recent Posts

Recent Comments