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Federal Reserve Likely to Maintain Rates Amid Mixed Economic Indicators

The Federal Open Market Committee (FOMC) of the U.S. Federal Reserve is set to meet on September 19-20, 2023, with market expectations suggesting a pause in rate hikes, keeping the rate at 5.25%–5.5%, a level close to a 22-year-high. This follows a series of rate increases aimed at maximizing employment and maintaining inflation at around 2%.

In the previous FOMC meeting in July, the Fed raised the key rate after a brief pause, bringing it to its current level. However, recent data from the U.S. Bureau of Labor Statistics indicates an unexpected increase in the unemployment rate to 3.8% in August from 3.5% in July, potentially prompting the Fed to slow or halt further rate hikes.

Meanwhile, fresh inflation data released on September 13, 2023, shows that U.S. consumer inflation rose sharply in August by 0.63% from 0.17% in July, with the annual inflation rate accelerating to 3.7% from 3.2%. The core CPI, excluding food and energy, fell to 4.35% in August from 4.65% in July.

"According to the latest labor report, the Fed is widely expected to hold the key rate hiking at next week's FOMC meeting," said Kar Yong Ang, an OctaFX financial market analyst. "But due to August's mixed inflation data report, the Fed must keep a hawkish tone in its messaging."

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While the key rate is expected to remain unchanged at the September meeting, the language used could signal possible future monetary policy tightening. This could potentially impact capital markets and strengthen the U.S. dollar, possibly leading to a rise in USDJPY to the 148.50–149.00 range.

In anticipation of the FOMC meeting, the market is currently experiencing a bearish trend, with potential consolidation until the Fed's next move. The tech sector's sluggish performance is contributing to this weakness. Despite this, some sectors such as utilities and oil are being closely watched as potential long plays due to their relative strength in a bearish market.

The upcoming FOMC meeting is expected to create some volatility in the markets, with traders eagerly awaiting more clarity on the direction of monetary policy from the Federal Reserve.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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