Save the dates – most important macro events of 2023

Here are the most essential macro events that will shape the markets’ direction over the course of this year.

FOMC Meetings

The Federal Open Market Committee (FOMC) is a part of the Federal Reserve System that directs open market operations and decides the direction of monetary policy in the United States. 

The Fed is widely expected to end the rate hike cycle in 2023, pushing federal funds to the 5.00 – 5.50% range. This is also known as the “terminal rate,” i.e., the final level of the federal funds rate.

The central bank has reiterated several times that it does not plan to cut interest rates in 2023 and that they need to keep the rates elevated for longer. However, the market already expects rate cuts in the second half of the year, as well as the new round of quantitative easing. 

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It will be interesting to watch who is right – whether investors and the central bank will fold and start loosening monetary policy again; or whether the Fed and monetary policy will stay tight throughout the whole year.

Another important event tied to the central banks will be the regular annual conference in Wyoming, which usually takes place in August and offers more insight into the central banks’ future plans.

ECB meetings

The monetary policy of the ECB is rather similar to the Fed. However, the ECB is one or two-quarters behind the US central bank. Therefore, the market expects a couple more rate hikes to bring the ECB’s main rate toward 4% at best, but afterward, monetary policy easing will likely occur.

US inflation

Analysts predict that average consumer price inflation will be 5.3% in 2023, down from 2022’s 9.59% and 2021’s 2.44%. Falling inflation may force the Fed to abandon its aggressive monetary policy tightening. 

US ISM surveys (PMI)

The ISM manufacturing index, also called PMI, measures how much production changes from one month to the next across the whole US economy. Every month, the report comes out on the first business day. So, it is one of the first things investors and business people get to know about how the economy is doing.

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As of recently, both the manufacturing and services sectors have weakened notably, falling below the 50.0 threshold, which divides contraction and expansion in the economy. It looks like the new year could start with a recession, induced mainly by the soaring interest rates and elevated inflation, as consumers are massively losing their purchasing power. 

If the US (global) economy enters a severe recession, the Fed will be forced to loosen monetary policy, confirming the current market expectations.