Extremely Risky Week Coming Up For Better or Worse
Tuesday December 13th is the day many people have been waiting for ever since Thursday November 10th. What do those two days have in common? They each mark the monthly release of the Consumer Price Index, the official inflation data responsible for some of 2022’s wildest trading days. Wild trading days aren’t just for traders. They have a big impact on mortgage rates, not to mention bigger picture impacts. For instance, if a wild trading day were to ensue from a higher reading on inflation, it would imply more restrictive policies from the Federal Reserve. That’s something that can shape entire economic cycles, potentially hastening the recession that some market-watchers expect in 2023. In the case of December 13th, it makes a lot of sense to worry about the implications for Fed policy. The Fed releases its next statement the very next day! It’s a near certainty that the Fed will hike rates by 0.50%, a 0.25% decrease from the last hike in early November. Markets won’t be reacting to that as much as the info the Fed publishes alongside the rate hike. Of specific concern is the proverbial “dot plot.” This is a reference to the format of the Fed’s forward-looking rate forecasts, published in dot plot format showing each Fed member’s thoughts. The “dots,” as they’re also called, frequently have the biggest impact on financial markets on the days when they come out (only 4 of the 8 Fed meetings per year).