Analysts anticipate the Fed to increase interest rate hiking just by a quarter of a point and likely suggest that it will remain diligent in its struggle against inflation as well, although diminishing the size of hikes.
A Smaller Interest Rate Hiking Increase Is Expected
On Wednesday at 2 PM ET, the Fed will announce its latest rate decision. 30 minutes later, at 2:30 PM, Fed Chairman Jerome Powell will address the press and make a statement regarding the rise in interest rates. This comes after December’s 0.5% increase, considered to be the smallest of this cycle since March 2020’s initial hike.
Although the meeting is likely to be predictable, financial strategists worry that it could be difficult for the Fed chief to pacify potential reactions from investors. Markets have been steadily increasing due to their expectations of the central bank’s success in executing an economic soft landing and suppressing inflation levels enough for them to return policy easing measures.
On Wednesday, the Federal Reserve is expected to raise interest rates for an astonishing eighth time since last March. This move would bring their fed funds target rate range up to 4.50% – 4.75%, leaving them just half a percentage point from reaching their terminal endpoint of 5-5.25%.
A Rally in the Stock Exchange May Prevent Fed’s Efforts.
If lenders are too lenient with issuing credit and stock markets continue to rocket, it could render the Fed‘s attempts to cool down the economy and lower inflation futile.
On Tuesday, stocks climbed as the Federal Reserve opened its two-day meeting. January marked a remarkable 6.2% gain for the S&P 500, while the tech sector saw an even more impressive 9.2% growth throughout last month! Rates have dropped significantly in just weeks – with the 10-year Treasury Yield dropping from 3.9% to where it is now at around 3/5%.
In the futures market, Fed funds futures are persistently priced below 5%. This indicates that investors believe the Fed will reduce interest rates by at least 25 basis points (which is 0.01 of a percentage point) before 2023 ends.
Jim Caron commented that the Federal Reserve’s reduction in rate increases will be interpreted as a ‘dovish’ stance. Before December’s 50-basis point hike, the central bank had consecutively increased interest rates by 75 basis points four times in succession.
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