November GDP data will show a rebound in growth across developed markets, but the amount of Omicron’s damage has yet to be determined. Persistently high inflation rates will compel central banks, such as the Federal Reserve, to hike interest rates more aggressively.
The Federal Reserve will gradually normalize rate hikes by adopting a more hawkish stance.
While the Omicron wave is undoubtedly concerning, the economy appears to be performing well and inflation pressures remain high. The headline CPI is expected to breach above 7% year on the year next week — rapidly reaching a 40-year high – with the core rate rising well above 5% YoY. This will only add to the pressure on the Fed to begin raising interest rates.
The market is increasingly leaning toward a March rate hike. Omicron could push it to May, but the risks are certainly skewed toward the Federal Reserve acting sooner and more swiftly. We still think that the March hike is the way to go.
We will have Powell Testify to the congress on Tuesday:
And the U.S. CPI data on Wednesday:
You could see the full Forex Calendar for market events here: Forex Calendar
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