All eyes on Powell's speech

Global markets are focused on Fed Chair Jerome Powell's speech this week. Powell is expected to give a message at the December meeting that the pace of interest rate hikes will slow down and that the fight against inflation will continue in 2023. Fed Chair Powell is expected to speak at an event to be organized by the Brookings Institution in Washington on Wednesday, ahead of the critical interest rate decision on December 13-14. The Chair is expected to signal that after four consecutive 75 basis point rate hikes, he will continue with a 50 basis point increase. However, since inflation is still above the 2 percent target, he may give the message that interest rates will increase next year as well. "Powell will probably give a hawkish tone and talk about the extent of the imbalance in the labor market," said Julia Coronado, Founding Partner at MacroPolicy Perspectives. Markets expect interest rates to peak at around 5 percent next year. The policy rate is currently between 3.75 and 4 percent. Bloomberg Economists Anna Wong, Andrew Husby and Eliza Winger said Powell “may remind everyone that we have not yet reached peak interest rates and that we will continue to tighten until inflation is sustainably low.” The minutes of the Nov. 1-2 meeting showed that most Fed officials agreed to slow the pace of rate hikes soon. Powell’s speech is scheduled to come two days before the November employment data. “Financial conditions have eased since the November meeting, and stocks have rallied. Powell may repeat his statement earlier this month that the pace of increases will slow but interest rates will continue to rise,” said Stephen Stanley, chief economist at Amherst Pierpoint Securities.