Federal Reserve Board Chairman Jerome Powell holds a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022.
Evelyn Hockstein | Reuters
This week’s Federal Reserve meeting will be remembered more for what policymakers say than what they do.
That’s because markets have priced in a near-100% certainty — 98.9% to be exact, as of Tuesday afternoon — that the Federal Open Market Committee will announce a 0.25 percentage point interest rate increase when the two-day policy meeting wraps up Wednesday afternoon, according to CME Group data.
While there’s often strong market consensus heading into FOMC meetings, it’s rarely this high.
What markets are unsure of is where the Fed goes from here. Traders are betting the central bank will hike a quarter point once more in March then stop, pause for several months, and then start cutting toward the end of the year.
Conscious that the fight against inflation is far from over, despite some encouraging data lately, Chairman Jerome Powell could push back on the idea of a looser Fed so soon in the future. Fed projections released in December indicate no cuts this year and continued rate hikes.
“He is on a very tight monetary policy tightrope, where he can’t allow the market to think this is the endgame,” said Quincy Krosby, chief global strategist at LPL Financial. “It’s prudent for him to be careful. It would be almost reckless for him to have the market believe that they’re just about finished and inflation is where they want it. Inflation is certainly not where they want it.”
With the careful communication path Powell must walk in mind, here’s what to expect when the FOMC’s post-meeting statement is released at 2 p.m. ET:
Rates
Over the past few weeks, Fed officials have been explicit in stating that, at the very least, they can start approving smaller moves than the four consecutive 0.75 percentage…
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