After the most aggressive policy tightening in more than 40 years, the Federal Reserve is preparing to slow down its rate hike, starting with a mild rate hike of 25 basis points on Wednesday. This will bring the target range to 4.50-4.75%, but still lower than the peak expected interest rate of 5.00-5.25% set by FOMC officials in December. So does slowing down mean stopping?

Inflation is still far above the target, and a tight labor market may mean that the Federal Open Market Committee still has more work to do. The financial situation has also dropped to the level before the Federal Reserve began its tightening cycle, which means that price pressure may remain high for a longer period of time. But officials will be wary of excessive interest rate hikes and accelerating deeper economic slowdown. They may also want to understand the impact of previous interest rate hikes.

Recent data, including retail sales and industrial production, seem to indicate a weakening economic situation, indicating that a mild recession may not be far away. This has seen the money market cut interest rates before the end of the year, which is in stark contrast to the recent comments of the Federal Reserve, which continue to focus on rising price pressures and maintaining interest rates for a longer period of time.

The bear market trend of the US dollar seems to be forming a foundation, but it largely depends on any changes in the language of the statement on the prospect of interest rate hikes to determine whether this trend holds. Expected 'sustained increase' is still 'appropriate', so any softening of this language will be dove like and harm the US dollar. Chairman Powell's reasons for slowing down the pace of interest rate hikes and any hints about the final interest rate at the press conference will also be a key focus.

'Don't confront the Federal Reserve' will point to the Fed Chairman's unanimous counterattack and US dollar buying, as signs of economic recession are widening. Powell may reiterate that the point above 5% in December remains a relevant historical lesson regarding the danger of premature interest rate easing.