The next FOMC meeting is scheduled for March 21. Markets are anticipating a slight increase in interest rates, but the market is not expecting anything significant. In fact, they expect the Fed to hold steady, with a hike in size around 25bps. The balance between the risks of recession and inflation suggests that the Fed will keep interest rates unchanged.
Whe Will Be The FOMC Meeting Start?
The Fed’s willingness to tolerate “pain” for some households and businesses is highlighted in its new Summary of Economic Projections. That might indicate that the Fed is allowing the economy to slow and enter a recession. The economy has been recovering, but high inflation remains a key challenge. Inflation has been over two percent for almost a year and a half and risks remain skewed to the upside. High inflation affects everyone, but it is a particularly onerous burden for lower-income households. This is because they spend more money on essentials, such as food and energy. Moreover, there is a shortage of labor, which has increased labor costs.
The Fed’s decision-making process is further complicated by the ongoing conflict in Ukraine. Russia is a major producer of oil, gas, and agricultural commodities. Disruptions to these supply chains could exacerbate the Inflation problem in the short-term. A lack of these commodities is adding to the uncertainty and deteriorating outlook for the economy. The central bank must ensure that inflation expectations are anchored. Otherwise, it will be extremely difficult to return to price stability. This would lead to lower economic output and higher unemployment. A robust control approach encourages strong action to keep expectations anchored and prevent a worse-case scenario from arising. Do you know all about the when is the next fomc meeting?
Interest rates have been rising for the past few years, but the pace of normalization has been surprisingly slow. While most Fed committee members expected a series of hikes in 2016 and a target rate of two percent by year’s end, the slowing economy and global risks have kept the Fed on hold. Currently, the central bank’s rate policy is very accommodative, and this encourages faster growth and faster return to full employment.
Trading By Following The FOMC Meeting
The Federal Reserve’s next big decision is expected later this month. The US consumer price index is the only major report before the Fed makes its decision. The index measures consumer price changes over a year. If it shows an unexpected decline, the Fed may decide to keep rates on hold until December. Many economists expect the Fed to slow its pace of rate hikes this year. Goldman Sachs expects the central bank to raise the federal funds rate by just half a percentage point in the remaining meetings. The result could be higher interest rates for consumers.
In the latest projection of the Fed’s future monetary policy, the central bank expects short-term interest rates to drop by a modest amount in 2024 and 2025, and then gradually rise again in the years after that. The Fed believes that in the long run, short-term rates will fall back to around 2.5%. However, as with any forecast, the forecast is just a projection at this point in time.
The decision by the Federal Reserve to delay the first hike in interest rates until 2024 was met with mixed reactions. The Dow Jones and Nasdaq soared after the Fed’s announcement, while the yield on the 10-year Treasury note backed off after hitting its highest level since Covid entered the U.S. In the aftermath of the announcement, the markets reacted with some uncertainty, but the Fed’s policymakers are unlikely to make any significant changes until their next policy meeting.
Wrapping It Up
The Federal Reserve has shifted from a neutral position to one of restrictive policy. Many economists believe that the Fed will raise rates in the second half of the year by 75 basis points, or about a half percentage point. In June, the central bank indicated that it expected the key interest rate to end the year in the range of 3.25% to 3.5 percent. That would be a modest drop compared to the past several years, and would mark the end of a prolonged period of elevated rates.
