When the Federal Reserve concludes its two-day meeting on Wednesday, the most important thing that will happen is not what it does, but what it says it may do in the future. This will be the most important thing.
The Federal Reserve is widely anticipated to implement a further rate rise of three-quarters of a percent, which would be its third consecutive increase. On Wednesday at 2:00 p.m. Eastern Time, it will also disclose its quarterly projections for inflation, the economy, and the future course of interest rates.
The projections of the Federal Reserve are always important, but at this time they are even more so because investors have been trying to game how high the Fed will raise interest rates and how much officials expect their actions could affect the economy. This makes the Fed’s projections even more important.
Fed Chair Jerome Powell is scheduled to talk at 2:30 p.m. Eastern Time (ET), and it is anticipated that he would highlight that the central bank will do whatever it takes to battle inflation, and that it is doubtful that the Fed will reverse its rate rises any time soon.
According to Rick Rieder, chief investment officer for global fixed income at BlackRock, “I suppose he puts up a bulletin board behind him that reads ‘Inflation Has to Come Down.'” I have a feeling he’s going to come out as aggressive.
The latest projections come at the same time as the Federal Reserve is moving into a zone of rate raising that some economists anticipate would be more restrictive and might more significantly harm the economy.
It is not what they do, but what they say that matters. This is our very first true road plan for reducing loosening. Up until now, we had theoretical road maps, but from the Federal Reserve’s perspective, they are entering a world of tightening. Diane Swonk, the chief economist of KPMG, referred to it as a significant consideration.
The Federal Reserve has been gradually increasing interest rates for the last seven months, and it just announced that it intends to raise its target rate to a level that is higher than what was formerly thought to be the neutral zone when inflation was low. The interest rate level that is deemed to be neutral is the level at which the Fed policy is no longer considered easy but is also not considered restrictive. The Fed has determined that a fed funds rate of 2.5% is neutral, and if it decides to increase the rate by three-quarters of a point, the rate will be somewhere in the range of 3% to 3.25%.
“We are sliding more and farther into the domain of restrictive monetary policy. Swonk explained that we will be travelling into a territory that was controlled by neither side. Since the beginning of the 1980s, the United States Central Bank has not implemented any new measures to control inflation. Their objective is to achieve a protracted slowdown that would eventually bring inflation under control while also progressively increasing the unemployment rate. There is still the question of whether or not they will make it.
Forecasts made by economists on how high they anticipate the Federal Reserve will push the fed funds goal before ending the rate rises have been gradually increased. This rate has been given the name the terminal rate.
Following the release of an unexpectedly high consumer price index for the month of August, market participants’ anticipation of a Fed rate hike surged considerably during the previous week. On Monday, Fed funds futures were pricing in a terminal rate of 4.5% by April, which is an increase from just about 4% prior to the publication of the inflation data the previous Tuesday.
In August, the Consumer Price Index (CPI) grew by 0.1%, despite the fact that experts had anticipated a fall.