Will the Fed stay the course or dial down on rate hikes? [Video]

The most highly anticipated FOMC Policy Meeting of 2023 and quite possibly the most “pivotal interest rate decision” in monetary-policy history is finally here.

There is no deny that the Federal Reserve is running out of good excuses to stay hawkish. Inflation appears to have peaked, energy costs have retreated, prices of core goods have declined – while housing market is showing signs of cooling and companies have begun to cut costs.

Since last year, the Federal Open Market Committee has hiked interest rates seven times in an effort to quell rising prices, including a string of “super-sized” 75 basis point rate rises – heralded one of the most aggressive tightening campaigns in the history of the U.S Central Bank.

Easing inflation sets the stage for the Fed to reduce the pace of interest rate hikes to 25 basis points, when officials conclude their monetary policy meeting on 1 February.

However, lingering scepticism about how quickly inflation will keep falling has put pressure on the central bank to maintain a hawkish stance and ward off any temptation to down-shift or even pause its monetary tightening campaign imminently.

As history has taught us, there are almost always “three waves of Inflation”. Which brings me onto the biggest macroeconomic play of 2023 – And that's China!

China’s swift reopening after nearly three years of strict coronavirus controls present the Federal Reserve with its biggest dilemma ever on whether to stick with its current plan of aggressive rate hikes or pivot to smaller interest rate increases.

The revival of the world’s second largest economy – and its biggest consumer of commodities – threatens to push up global prices for energies, metals and agriculture – inevitably suggesting that the world could be faced with a “second wave” of inflation this year.

The big question now is will the Fed stay on course or make a repeat of 2021, when policy makers mistakenly called inflation transitory?

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions: