What do markets expect from the Fed? What do the data indicate?

Global markets are waiting. Tomorrow’s FOMC meeting will be important in terms of what the Fed does next. Market expectations have already been priced at 25 basis points, so is this the latest rate hike the most important point? Will the price be raised by 25 basis points in March? If he comes, will March be the last? More importantly, will there be a rate cut this year?

If we recall briefly, Fed Chair Powell insisted that we are far from that, which meant at the previous meeting that the markets could not reasonably have expected a rate hike before the end of this year. Saying that interest rate cuts are not on the agenda several times this year, Powell’s remarks could not convince the markets. So why is the market waiting for a rate cut? Since the peak of inflation is believed to have been seen, the impact of the current interest rate hike will continue, and more importantly, the slowdown in economic activities will dampen the Fed.

In your opinion, dear reader, are the markets overly optimistic or is the Federal Reserve too cautious?

On inflation, the Fed has lagged behind the market. The Fed, which had long viewed inflation as temporary, finally had to take big steps. He sacrificed growth to lower inflation. Of course, this concession has its limits. And this is where market expectations come into play. The significant economic challenge that the Federal Reserve is facing is of course a problem, but it has not been the worst of all. January data also supports the soft bearish view used in the market as mentioned earlier. In other words, a situation where interest rates are high due to inflation does not strain economic activities too much.

Well, doesn’t that strengthen the Fed’s hand? In other words, if interest rates do not hurt the economy at the scary rate, these rates can be maintained for a while in order to control inflation. This supports Powell’s view that we are not considering a rate cut this year.

So why are markets waiting for a rate cut in this thinking environment? Dominated by the notion that inflation will fall faster than expected during the year. Markets believe that inflation, which will fall more than expected, will stimulate the Fed before the end of the year.

The fact that this war, which appears to be Russian and Ukrainian but mostly between Russia and the West, is not ending, and tensions are rising again, creates uncertainty regarding the trajectory of energy prices.

On the other hand, there is a decrease in food prices for some products depending on the climatic conditions, but grains, which contain a high percentage of basic needs, are also on the war agenda. This increases the risk.

Since the markets no longer see the war in the first place, they get a lot of grip on the idea that inflation will go down. I also think that the markets are very bullish and I hope you are right.

And if the Fed does not give the expected signal, the loser’s losses may stop, but in order to be optimistic about the dollar index, there must be stability in the region of 103.50-105-30. Otherwise, a fall back towards 101 would not be surprising.

dollar index

The pressure is building in BEST 100

Beast 100, which completely unraveled during the month, moved its losing streak to the seventh day in a row and tested 5,000 points from . And if there is no daily closing above 5,370 points, the index may fall to the support of 4,700 points. Given last year’s rally, these levels are certainly not low, but there are concerns that this could be the beginning of a decline. In the short term, there may be a decline towards the range of 4.700-4.155, but as long as 4.155 points are maintained, the upward trend in the index may continue. I am following this level at the moment.

Best 100
Best 100

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