Top 3 Things Traders Have to Watch: Rate Hike, CPI, Earnings

After Fed Chair Jerome Powell avoided discussing US monetary policy at a speaking engagement yesterday, bulls are in a way sighing a sigh of relief. His lack of comment is being seen by some analysts as a warning that the Fed would scale down its rate increases.

Raised Federal Reserve Rate

Currently, traders predict that the next Fed meeting on January 31–February 1 will result in a 25-basis point rise, with a probability of approximately 77%, compared to only 23% for a 50-basis point hike. Many bulls take the fact that he didn't attempt to caution Wall Street away from that perspective as some type of signal that there may be another step down in rate rises.

However, bears are highlighting statements made by other officials that reaffirm the Fed's commitment to raise rates to "restrictive" levels and maintain them there for a longer period of time than in previous tightening cycles. The majority of people still believe that interest rates will peak around 5%, but bears caution that Wall Street bulls are underestimating how long those rates may stay there and how much high rates would slow the economy. Further warnings from bears claim that bulls are underestimating the harm that high inflation is doing to the economy and company profits.

According to bears, they anticipate that inflation will stay persistently high for most of this year and potentially into 2024.