Morgan Stanley IM: This Week’s Fed Meeting: What Words will Move Markets?

Morgan Stanley IM: This Week’s Fed Meeting: What Words will Move Markets?
Fixed Income

Jim Caron, Co-Lead Global Portfolio Manager and Co-Chief Investment Officer, Global Balanced Risk Control Team, shares his macro thematic views on key market drivers.

01.02.2023 | 06:13 Uhr

Jim Caron

  • As the Fed nears the end of its tightening cycle communication is critical, as words can move markets, but mistakes can be made.
  • WSJ journalist and Fed “mouthpiece” Nick Timiraos last Sunday signaled the Fed’s intention to slow the pace of rate hikes to 25 basis points this upcoming Wednesday.
  • This Sunday however he indicated that this does not imply the Fed is stopping here, instead that the terminal rate is still under debate and may yet end up in the 5.0 - 5.5% range.
  • The Fed is likely debating “top-down” factors like unemployment and output, arguing about whether demand is still too high and more hiking is needed to cool the economy.
  • But the Fed may also be assessing “bottom-up” data focused on falling wages, layoffs and weak GDP components including retail sales, auto and housing, which may ultimately lead them to end the hiking cycle sooner rather than later.
  • All in all, we will be listening closely to the Fed this Wednesday.

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Risk Considerations

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