The fourth in a series preparing for this week's Fed meeting
The Federal Open Market Committee's (FOMC) highly anticipated meeting will conclude at 2 p.m. on today, March 16, with comments from Fed Chair Jerome Powell about monetary policy and the overall state of the U.S. and global economy. CME Group's FedWatch tool projects a 25-50 basis-point rate hike from the central bank at the meeting's conclusion.
It's safe to say all eyes are on the Fed. With Russia's invasion of Ukraine, inflation spiking stateside, and Covid-19 cases dropping, the Fed's actions and subsequent comments will go far in shaping how the rest of the year unfolds. To help unpack this monumental week for Wall Street, we asked David Russell, Vice President of Market Intelligence at TradeStation Group, to weigh in with some broader thoughts on the matters at hand.
This is part four of a mega-Fed series, so stay tuned for more!
The Fed will probably hike rates by 25bp on March 16. Their actions are pretty clear right now because rates are still nowhere near normalized. Just getting back to neutral requires several hikes, so policymakers don’t need to change much versus the January meeting.
The Ukraine situation doesn’t have much impact on the Fed right now. Inflation was already a problem, and now it’s more of a problem. But the Fed also knows that geopolitical events like these are unpredictable and there’s no reason to change a policy course they’ve worked hard to craft. Powell will probably reassure investors that the Fed is monitoring the financial system for potential stresses resulting from the crisis, but not much more than that.
Powell needs to keep a steady course between the unusual forces driving up inflation and the potential for things returning to normal. Investors could be overestimating the long-term risk of inflation because things will probably improve as the effects of the pandemic fade. Production will resume. Inventories will be restocked and some of the intense pricing pressures will ease. The big surprise for later 2022 could be a calming of inflation. Still, the Russia situation remains a wild card, especially with agricultural products and metals. At this stage we simply need to see how it plays out.
Mega-Fed Series Part 1
Mega-Fed Series Part 2
Mega-Fed Series Part 3
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