Marketmind: Investors Brace for Powell’s Hawkish Speech Amidst Rate-Cut Hopes

After a stellar November, investors are bracing for a positive start to December in Europe, fueled by expectations that central banks will soon begin cutting interest rates. However, a potential “fireside chat” with Fed Chair Jerome Powell later today could dash these expectations.

Recent Data Fuels Rate-Cut Expectations

Recent data from both the eurozone and the United States has indicated that inflation is easing, prompting expectations that central banks will soon begin cutting interest rates. Money markets are currently pricing in over 100 basis points of rate cuts next year from both the Fed and the ECB.

Powell’s Speech in Focus

Investors are now pricing in a 46% likelihood that the Fed will cut rates in March, up from 27% just a week ago. However, all eyes will be on Fed Chair Jerome Powell’s speech later today for any hints about the central bank’s future policy trajectory.

Powell’s Hawkish Stance Could Weaken Rate-Cut Bets

Some analysts caution that Powell’s speech could be more hawkish than expected, potentially undermining rate-cut bets. Powell has previously indicated that the Fed is determined to bring inflation back down to its 2% target, even if it means raising interest rates more than markets currently anticipate.

Implications for Markets

A more hawkish stance from Powell could lead to a repricing of risk assets, with stocks and bonds potentially selling off. The dollar could also strengthen in response to higher interest rate expectations.

Investors will be closely watching Powell’s speech today for any clues about the Fed’s future policy path. If Powell strikes a more hawkish tone, it could undermine rate-cut bets and lead to a repricing of risk assets.

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