The US Federal Reserve delivered a 50 basis point increase in interest rates – a day after it reported that consumer prices fell a further 7.1% in November (read more)
What is the updated forecast for the terminal rate?
This pushed the key rate to between 4.25% and 4.50% – the same rate seen 15 years ago.
Are you looking for breaking news, hot tips and market analysis?
Sign up for the Inves newsletter today.
S&P 500 The Fed pared its intraday gains following the announcement, especially as it forecast a terminal rate of 5.1% in 2023. Report Almost unchanged from last month.
According to the Federal Open Market Committee, the U.S. economy is expected to grow at an annual pace of 0.5% this year. This is a significant level against the rapid growth of a year ago.
Nevertheless, Chairman Jerome Powell insisted that the labor market remains strong and that rates will need to remain high for a long time to win the ongoing battle against inflation. Despite two consecutive months of soft readings, the central bank needs substantial additional evidence that inflation is steadily declining, he says.
What spurred investors was that the FOMC raised its forecast “Key PCE Price Index” – Its preferred inflation rate is 30 basis points and the September forecast is 4.8%.
Participants continue to see risks to inflation while weighing the upside.
Fundstrat’s Tom Lee expects stocks to rally in 2023
However, Fundstrat’s Tom Lee expects the S&P 500 to end next year at 4,750, implying a 20% upside from here. Defending his creative vision at CNBC “Halftime Report”he said:
The reality of monetary policy regression. Inflation has already halved in the last few months and is at 4.0% annually. And that’s before we really see the bite of monetary hikes.
Lee is confident that “income stagnation” will not go away as supply constraints continue to be eased and currency interventions are eased. Interestingly, though, he didn’t initially count on positive revenue growth for that double-digit gain.
Of the 21 instances in which a stock declined in one year, the following year, 18 were positive years, seven of which had negative earnings growth. So, till this crisis on inflation ends, stocks will do well next year.
Trust in Lee stock market Because oil – a key component of inflation – has now returned to its pre-war Ukraine price.