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What stock investors will be looking for in the Fed minutes

The Federal Reserve will not meet again until the next rate-setting meeting on December 13-14, but minutes from the November meeting scheduled for Tuesday afternoon will be watched by investors for clues on the level. what the reference interest rate should reach and over how long. it will stay there until inflation falls below the central bank’s 2% target.

David Donabedian, chief investment officer of CIBC Private Wealth US, doesn’t think the minutes will deal a blow to the stock market.

“We’re going to see the debate and discussions around the two-step process, in other words, the importance of slowing the pace of rate hikes, but also not appearing to have declared victory over inflation,” he said. said Donabedian. “There’s certainly been some discussion about whether to slow down the magnitude of rate hikes, but also whether to stay firm in that terminal rate. I think that’s going to be the bottom line.

“They’re going to look at the inflation numbers and the recession indicators, and it will ultimately depend on the data,” he added.

Wall Street’s major indexes started the volatile month with investors reacting to remarks from Fed Chairman Jerome Powell, who sent a clear signal at his press conference on November 2 that interest rates will rise and stay there longer than expected. Although weaker inflation figures the following week saw stocks post biggest single-day gain since 2020, subsequent hawkish comments from some Fed officials have dampened investors’ hopes of an upcoming central bank policy shift.

US stocks finished better tuesday with the Dow Jones Industrial Average DJIA,
+1.18%
gaining 1.2%, while the S&P 500 SPX,
+1.36%
and the Nasdaq Composite each rose 1.4%.

See: These stocks burn cash fast and may need to raise capital soon, Goldman Sachs warns

However, Michael J. Kramer, founder of Mott Capital Management, worried that the Fed minutes would strengthen the US dollar and weaken stock markets. He argues that stock investors have not fully taken on board the hawkish message delivered by Fed officials last week.

St. Louis Fed Chairman James Bullard On Thursday, there was talk of the possibility of the key rate heading towards a range of 5% to 7%. Minneapolis Fed’s Neel Kashkari also said he wanted to be sure inflation had stopped rising before backing a halt to interest rate hikes.

If stock investors have been paying attention, the minutes shouldn’t cause a significant market shock tomorrow, Kramer wrote in a Monday note. But the problem is that while bond and money markets reacted and stopped falling last Thursday, the stock market was too focused on options expiration to pay attention to hawkish Fed officials, he said. declared.

Lily: It’s not a “close your eyes and buy anything” kind of market.

Traders widely expect the Fed to hike rates by 50 basis points in December, with some still betting on a 24% chance of a 75 basis point hike, according to CME Group’s FedWatch Tool.