The Fed or Federal Reserve may raise the interest rates by a quarter point. But, it also signaled that it would remain cautious in the fight against inflation. The Fed issued the latest rate decision on Wednesday. Jerome Powell, the Fed Chairman, briefed the media. The money target rate range since the 1st hike of the last March cycle.
However, it can be challenging for the Fed chief to ease the reaction in financial markets. Markets are rising, and investors hope the central bank will succeed in landing a soft landing for the country’s economy. Also, easing policy to tame inflation. The rate hike on Wednesday will be the eighth since last March. This will keep the Fed funds target rate range only at 4.50 percent to 4.75 percent. That is just half the percentage point away from the Fed’s projected endpoint, or final rate range of 5 percent to 5.25 percent.
The ease in the credit and stock market can thwart the Fed’s efforts
Stocks rose on Tuesday. This was because the Fed began its 2-day meeting while halting January month’s gain of nearly 6.2 percent for the S&P 500. The tech sector rose 9.2 percent for the month. Rates fell since the end of the year. This comes with the benchmark of the 10-year Treasury yield, which is hovering near about 3.5 percent after it ended December at about 3.9 percent.
For the futures market, Fed funds futures had continued to be priced lower than the 5 percent terminal rate. Futures also show that the investors would like the Fed to reverse policy and cut rates by at least 25 on the basis points through the end of 2023. Here, one basis point is equal to 0.01 of the percentage point. However, what comments Powell makes now about the economy and whether Powell expects it to slide into recession is a worry for several economists. So, the investors will be paying attention. The central bank did not factor in a recession in any of its forecasts but expects sluggish flat growth. Plus, it sees the unemployment rate gaining ground to 4.6 percent from December’s level of 3.5 percent later this year.
The Fed, here, is not expected to make a significant change to its policy statement while announcing a rate hike. The final statement said that the ongoing increases in the target rate range will be appropriate to reach a policy position that can send inflation back to 2 percent. So, the Fed is now making progress against inflation. Strategists say that the Fed requires more data and shall wait until March to signal how long it may continue raising the interest rates. If it stays at that pace, two more quarter-point increases can follow.
The Fed shall not issue new forecasts or economic projections on Wednesday. However, its next forecast is the quarterly release of economic projections at the March meeting, which is a one-way market that shall get more clues on the desired rate path.