Will the Fed cut in March? What will the week bring?

Last week was associated with several important events for investors. The first was the SEC's acceptance of a Bitcoin spot ETF (ETP), the second was the publication of December inflation data in the United States. The market basically got what it wanted, so it shouldn't be surprising that investor sentiment is generally good.

Continuation of the disinflation process in the USA

Although American core inflation decreased, it was less than expected (3,9% vs. 3,8%). It should be noted, however, that the market consensus decreased at the last minute. However, the key fact is that most analysts expect the disinflation process to continue in the United States. There is a good chance that in the second quarter of this year we will see the core inflation rate drop below 3%. This would give the Fed a great basis to start lowering interest rates. will this really be the case?

At this point, services are almost mostly responsible for inflation in the US, with apartment rents having the greatest impact on price dynamics. However, even without this element, services inflation is still near 3,5%, which could potentially worry the Fed. It reflects less than expected PPI inflation – the core measure in December was 1,8% and was the weakest since January 2021. Despite this, the probability of a Fed interest rate cut in March is rising above 80%. We will find out in the coming weeks whether this state of affairs will continue.

Taiwan remains a geopolitical risk factor for the Fed's monetary policy easing. The victory of the current vice president, Lai Ching-te, increases the chances of maintaining a confrontational attitude towards mainland China. The risk of a deterioration of the situation in the Taiwan Strait is high, and the economic repercussions of a possible conflict outweigh the impact of the pandemic.

In today's webinar:

• The impact of the Taiwan elections on the global economy
• What do the latest macro data tell us?
• How does the US earnings season start?

About the host

Dr Przemysław Kwiecień - Chief economist X-Trade Brokers. Doctor of Economics at the University of Warsaw, graduate of the University of Warsaw and London Metropolitan University (MSc). Holder of the prestigious CFA certificate. He has been working for XTB since 2007, previously he gained experience as an advisor to the Minister of Finance, Mirosław Gronicki, and an economist at Bank Millennium. At XTB, he manages the Analysis Department.

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