Today, it could turn out to be a make-or-break day for the stock markets. The US Federal Reserve will be announcing the decision on whether they are taking a pause or continue hiking interest rates. The FOMC meeting is underway on March 21-22 and the Fed’s final decision on rate hikes will be announced by Fed Chair Powell on Wednesday, March 22 at 2 pm ET. (11.30 pm IST).
The FOMC rate hike release will be followed by Powell’s press conference which will be closely tracked by investors globally.
The Fed will also publish The Summary of Economic Projections which will shed light on the policymakers’ expectations for interest rates and the US economy through the rest of 2023 and beyond. The Fed Dot Plot will signal the terminal funds rate that the Federal Reserve officials are targeting.
Meanwhile, the Fed continues to face bigger challenges after the banking crisis that has put the spotlight on US regional banks. The unprecedented rate hikes by the Fed over the past 12 months have eroded the value of long-term securities held by banks thus impacting them, especially during withdrawals by depositors.
Markets, therefore, hope for the Fed to pause sometime soon. If a 25 bps rate hike is delivered on Wednesday, the probability of a pause may become high. However, recently ECB hiked rates by 50 bps as against market expectations of 25bps, clearly signalling that inflation needs to be tamed at all costs.
There have been calls for a 50bps rate hike as well. A 50 bps rate increase also changes the focus from the present 4.5% to 4.75% range to the terminal fund’s rate, which may end up close to the 6% mark. At elevated rates, the economy risks a recession. “The US bond markets are expecting an imminent recession with the US yield curve bull steepening,” says Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund.
It remains to be seen if Powell sticks to his remarks during congressional testimony on March 7 and 8 that the Fed would raise rates more quickly than expected as a result of stronger-than-expected economic indicators. He noted that stronger-than-expected data on factory output, consumer spending, and hiring shows persistent inflationary pressures.
Source : FinancialExpress
