The Federal Reserve will announce its decision on interest rates Wednesday afternoon. Markets anticipate the central bank will enact a 25 basis point rate hike.
All eyes are on the Federal Reserve as it concludes its two-day meeting Wednesday afternoon with a key decision on interest rates. Markets anticipate the central bank will raise the interest rate by a quarter of a percentage point, bringing the benchmark funds rate to a range of 4.75% to 5%. Central bank officials are also expected to issue their projections for inflation, unemployment and the peak rate at which it will end its tightening campaign.
"The Fed still has work to do, and their actions and communications are going to come under increasing scrutiny given the events of the past few days," said Vanguard senior economist Andrew Patterson. "They need to be careful in balancing the risks of price and financial stability." Joseph Davis, the firm's global chief economist, said the central bank has to walk a "delicate line."Luke Bartholomew, senior economist at abrdn, said he agrees with the consensus prediction that the central bank will approve an interest rate hike of a quarter of a percentage point. But he said that decision marks a shift from before the banking crisis, when a half percentage point hike was considered a more likely possibility.
"The Fed faces a very tough decision this week," Bartholomew said. "Just a couple of weeks ago, Chair Powell seemed to be preparing the ground for the Fed to raise rates by 50bps in March in response to concerns about the inflation outlook. However, the rolling bank sector crisis now means many investors are expecting the Fed to keep policy on hold this week to avoid inflicting any more stress on markets.
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