Larry Summers Pats The Fed On The Back Ahead Of Pivotal Interest Rate Decision: What You Need To Know Ahead Of The Print

Zinger Key Points
  • Larry Summers says Tuesday's CPI data should influence the Federal Reserve.
  • The bond market is pricing in an 81.8% chance of a 0.5% rate hike and an 18.2% chance of a 0.75% increase.

Former Treasury Secretary Larry Summers is encouraged by this week's CPI data and said he hopes the Federal Reserve will relay a similar message following its decision on rates set for Wednesday afternoon

What To Know: Summers took to Twitter Wednesday morning to commend the Fed for recent actions in its fight against historically high inflation. The former Treasury Secretary noted that Fed action is starting to be realized. 

"The economy appears stronger and inflation expectations a bit lower than I would have guessed a few months ago," Summers said via tweet. 

"This is good news and a tribute to determined @federalreserve action."

Related Link: Larry Summers Says Fed Needs To Signal It's Nearing End Of Rate Hikes: 'Will Be Looking To See Whether...'

Why It Matters: The Fed has already raised rates a total of six times in 2022 and is set to release its last decision on rates for the year at 2 p.m. ET. 

The bond market is pricing in an 81.8% chance of a 0.5% rate hike later today, according to CME Group data. The likelihood of a fifth consecutive 0.75% rate hike sits just above 18%, down from a greater than 26% chance just one day before. 

On Tuesday, the Labor Department reported a 7.1% year-over-year increase in the consumer price index for November, below average economist estimates of 7.3%. The market rallied before pulling back as investors shifted their attention to the Fed. 

"These numbers should, at the margin, influence the @federalreserve," Summers said.

What Else: In addition to the decision on rates, investors will be paying close attention to Fed Chair Jerome Powell's outlook at a press conference set for 2:30 p.m. ET. 

Following the Fed's fourth consecutive 0.75% rate hike last month, the SPDR S&P 500 SPY charged higher as the central bank said it was watching the cumulative tightening of monetary policy and the lag with which it affects inflation.

Yet the market reversed when Powell highlighted new data since the Fed's last meeting, suggesting "the ultimate level of interest rates will be higher than previously expected."

Wharton Professor of Finance Jeremy Siegel told CNBC late Tuesday that he expects Wednesday's rate increase to be the last in this cycle. 

The discussion should begin to shift to when the Fed will lower rates, he said. The Fed is data dependent and incoming data should be obvious, he added. 

The Fed needs to stop looking at "stale" housing data and come to the realization that inflation is "over," Siegel said.

Check This Out: Why Wharton Professor Jeremy Siegel Says The Fed Is Reading The Wrong Data, CPI Print Is 'Bogus' And Inflation Is 'Over'

SPY Price Action: The SPY was up 0.66% at $404.63 Wednesday morning ahead of the rates decision.

Photo: Chatham House from Pixabay.

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Posted In: Long IdeasNewsPreviewsEcon #sTop StoriesFederal ReserveMarketsTrading IdeasInflationInterest RatesJeremy SiegelJerome PowellLarry Summers
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