The Federal Reserve on Wednesday will hike rates by a quarter-point, a downshift from December but will make sure to sound hawkish, economists said.
The Federal Reserve will downshift to a 25 basis point rise in its policy interest rate at their upcoming interest-rate meeting and will work overtime to make sure that the market doesn’t get the idea that rate increases are finished, economists said.
“Despite the good news on inflation and being one step closer to done, it’s likely too soon for the Fed to stop raising rates and likely too soon to signal a stop is imminent,” said Jonathan Pingle, economist at UBS. Powell will hold a press conference at 2:30 p.m. Eastern on Wednesday, a half-hour after the Federal Open Market Committee announced its rate decision.
Investors who trade in fed funds futures markets now expect the top end of the Fed’s benchmark rate to be 4.5% at the end of this year and 2.9% at the end of 2024, noted Ashworth.Heading into Friday trade, the S&P 500 SPX has bounced 15% from its October lows, and riskier assets have seen stronger moves: bitcoin BTCUSD is up 46% from late November levels.
To hold expectations, Powell will continue to press the theme that he doesn’t think the Fed is done, Bostjancic said.After a quarter-point increase, Bostjancic thinks the Fed will raise rates by two more quarter percentage points — in March and May — before pausing. That would put the peak of the benchmark rate up to a range of 5%-5.25%.Read: The economy doesn’t look as good as GDP suggests
Ellen Zentner, chief U.S. economist at Morgan Stanley, said the Fed will pause after Wednesday’s meeting.
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