Interestingly, some Fed policymakers are bringing up the issue of the slower pace of rate hikes. Nevertheless, demand for the US dollar is growing because there are no fundamentals for buying risky assets at the end of the year. The Federal Reserve is widely expected to revise the course of its monetary policy in the near future. The thing is that those who are betting on the dovish reversal in the Fed's rhetoric might pay dearly for it. A slowdown in the aggressive tightening does not mean that the FOMC will not achieve its goals. The pledges are likely to be fulfilled, albeit with less tough measures than the central bank planned half a year ago.
Atlanta Federal Reserve Bank President Rafael Bostic said late last week that he advocates for a slowdown in interest rate hikes, but no more than 1 percentage point. In his opinion, this could ensure a normal and soft landing for the economy. "If the economy develops as I expect, I believe an additional tightening of 75 to 100 basis points would be justified," Bostic said in a prepared speech. "Obviously there is still quite a bit of work to be done, but I am confident this level of the federal funds rate will be enough to curb inflation for a while."
Bostic's plan is to give up a 75 basis point rate hike this December and further raise rates to a maximum range of 4.75% to 5% over the next few meetings. He called this the "landing interest rate" at which the Fed will be able to keep consumer prices under control and achieve a softer landing for the economy.
Let me remind you that Fed officials raised interest rates by 75 basis points for the fourth time in a row on November 2, bringing the federal funds rate to a range of 3.75% to 4%. Several more policymakers signaled last week that they could also vote for raising rates by 50 basis points at the final policy meeting this year in December, depending on what happens to the economy and what the November inflation data looks like.
Bostic's view of the 5% ultimate rate is at odds with the official plans of the Federal Reserve and his more hawkish colleagues. Louis Fed President James Bullard on Thursday called for a rate hike of at least 5-5.25%.
Bostic also noted that there are glimmers of hope that supply disruptions will begin to ease in the near future, adding that recent inflation data has been mixed," and much more needs to be done to combat inflationary pressure. "My baseline forecast is that the macroeconomy will be strong enough that we can continue to tighten policy until inflation really starts to come down without causing distortions in production output and employment," Bostic said.
But as soon as Bostic expressed his hope for an improvement in the situation with supply chains, it was reported today that China has again recorded a sharp increase in deaths from the coronavirus and recent easing, which the government made under public pressure, risk ending as quickly as it began.
However, as soon as Bostic expressed his hope for an improvement in the situation with supply chains, it was reported today that China had again recorded a sharp increase in the coronavirus death toll. Thus, the recent easing in COVID restrictions, which the government made under public pressure, could be canceled as quickly as it was announced.
Bostic concluded his speech by saying that once the policy reaches a sufficiently tight level, he foresees a long pause in rate hikes, but will not advocate for a quick reversal to ensure that inflation does not return with renewed vigor, as it did in the 1970s. He urged other policymakers to "stay focused and determined" until inflation is brought down.
The technical picture of EUR/USD shows that the market is in limbo. Apparently, demand for risky assets is ebbing away and the sellers are taking the lead. To enable further growth, EUR/USD has to push ahead above 1.0330. Once reached, the price will easily climb to 1.0475. In case the trading instrument declines, only a break of support at 1.1265 will push EUR/USD down to 1.0210 and escalate selling pressure on the currency pair. The lower target is seen at 1.0160.
As for the technical picture of GBP/USD, the sterling has come to a standstill. The buyers are focused on the defence of support at 1.1770 and the fight for the resistance at 1.1860 which caps the upside potential of the currency pair. Only a breakout of 1.1860 will cement the hope for a further recovery to 1.1950. Once reached, traders could expect a sharp jump to 1.2020. We could speak about renewed selling pressure after the bears take 1.1760 over from the bulls. It will destroy bullish sentiment and wreck the bullish prospects of the trading instrument. A breakout of 1.1760 will push GBP/USD back down to 1.1710 and 1.1650.
