4 Scenarios for the Fed.. That Could Change Everything in the Markets Today, by Investing.com

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Investing.com – Today, Wednesday, financial markets are looking forward to interest rates, in order to determine the Fed’s next direction regarding the pace of interest rate hikes, or even lowering them in the coming months.

In this context, some economists argue that declining bond yields and loose financial conditions will in fact increase inflationary pressures.

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bond market

“The bond market is moving lower, and that means the Fed will have to raise more,” says Avery Shenfeld, chief economist at CIBC World Markets.

On the other hand, some economists note that easy financial conditions are not the worst thing when you have an economy that is still in recession.

They believe that inflationary trends give the central bank the ability to stop as soon as possible in (March).

Everyone agrees

All parties agree that a quarter-point rate hike today is a foregone conclusion.. This would bring the Fed’s benchmark interest rate to a range of 4.5% – 4.75%.

The Fed will release its monetary policy statement today, Wednesday, at 2pm ET, followed by Powell’s press conference at 2:30pm.

“What Powell will say at his press conference is likely to be more effective than the decision itself,” said Krishna Guha, vice president of Evercore ISI.

Four ways

Economists think Powell could turn aggressive – a term used to describe central bankers who care more about inflation than economic growth across these scenarios:

Fixed height

In December, a Fed statement said that Fed officials expect “continued increases in the target range would be appropriate.”

Michael Feroli, chief US economist at JPMorgan (NYSE: NYSE), believes the Fed will revise the wording to say that continued increases are “likely appropriate” rather than assuming they are appropriate, so that there is room to explore how vulnerable the economy is. to raise interest rates in the coming period.

Facilitate conditions

In the minutes of the Fed’s December meeting, officials worried that “undue easing of financial conditions, especially if driven by misconceptions by the Fed, would be a convoluted attempt to restore price stability.”

“If the Fed wanted to add a worrying touch to an announcement on Wednesday, it would suggest that rates don’t start falling again until 2024,” said Paul Ashworth, chief economist at Capital Economics.

Not sure

The minutes of the (December) meeting of the Federal Reserve indicated that “it would be appropriate to begin reducing the targeted federal funds in 2023.”

Diane Swonk, chief economist at KPMG, believes Powell may echo that sentiment in his press conference on Wednesday.

Transfer points

Once every three months, Federal Reserve officials publish their forecasts for the path of interest rate policy, known as the “points”.

In December, the median forecast by Fed officials was for a rise to the 5%-5.25% range, which is the Fed’s target range this year, at a quarter-point pace, meaning the rate hike will end in May.

Last year, before the Score was published, Powell indicated that officials were prepared to move DOTS to a higher level than they had planned for in September.

Derek Holt, head of capital markets economics at Scotiabank, thinks that could happen again. “I think Powell might repeat what he said about how the points turned back in March,” he said.

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