The Federal Reserve is predicted to increase interest rates by a quarter of a percentage point and also likely indicate that it will continue to remain cautious in its efforts to combat inflation, even as it decreases the magnitude of its hikes. On Wednesday at 2 PM ET, the Fed will announce its latest rate decision and Fed Chair Jerome Powell will address the media at 2:30 PM. The expected quarter-point hike comes after a half-percentage point increase in December and will be the smallest hike in the federal fund’s target rate range since the start of the cycle last March.
Although the meeting is predicted to be uneventful, strategists believe that it may pose a challenge for the Fed Chair to manage the market’s reaction. The markets have been rising as investors anticipate that the central bank will achieve a smooth transition for the economy and also effectively control inflation, allowing it to return to easing policies.
“How will he convince people to calm down, take it easy, and not get too excited about the end of the interest rate hikes?” asked Peter Boockvar, the Chief Investment Officer at Bleakley Financial Group. “He will do this by reiterating that the Fed will remain tight for some time. Just because the hikes are finished does not mean there will be an immediate transition to easing policies.”
The Fed’s rate hike on Wednesday will be the eighth since March. It will result in the fed funds target rate range being 4.50% to 4.75%. This is just a half percentage point away from the Fed’s estimated final rate range of 5% to 5.25%.
“I believe he will push back on financial conditions, which the markets are anticipating,” said Rick Rieder, BlackRock’s Chief Investment Officer for Global Fixed Income. “People are aware of how much credit spreads, equity markets, and tech stocks have changed this month, which has been extraordinary.”