By Howard Schneider
WASHINGTON (Reuters) – The Federal Reserve will conclude its last policy meeting of the year on Wednesday amid an unexpected drop in inflation, a consensus around a slower pace of interest rate hikes and with markets poised for the interruption of monetary tightening.
Fed officials have signaled in recent weeks that they will raise interest rates by 5 percentage points at their two-day meeting this week, pulling back after four consecutive 75-point hikes in an acknowledgment that rates are rising. approaching the level needed to slow down the economy and contain inflation.
Along with the monetary policy statement, which will be released at 16:00 (Brasília time), the authorities will report new projections showing how far away the end point may be. This follows the release of market-friendly November US inflation data on Tuesday, triggering bets in stock and bond markets that the endpoint may be closer than expected.
After the expected increase of 0.5 percentage points on Wednesday, the interest rate will be in the range of 4.25% to 4.50%. Investors in interest rate-linked contracts now see the Fed pulling back to 25-point highs in February and March, leaving the rate below 5% at the stop point.
Fed Chair Jerome Powell will give a press conference at 4:30 pm to give more details on the monetary policy decision and what may happen in the next meetings.
The focus should fall mainly on the new economic projections that will mark a new phase in the Fed’s monetary policy debate. With interest rate peaks close at hand, the new projections will show both the expected progress of inflation over the year and the cost that higher interest rates may have in terms of rising unemployment and slower economic growth – issues that could start to press the current Fed consensus.
(Reporting by Howard Schneider)
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