What Might Be Expected From Today’s Fed Press Conference?

At 2 P.M. EST today, following the conclusion of its two-day summit, Federal Reserve Chairman Jerome Powell is expected to announce to the public the Federal Open Market Committee’s decision regarding interest rates. As the American economy faces significant macroeconomic headwinds, not least among them skyrocketing inflation, some say the stage is set for a drastic turn to the hawkish side of the monetary policy spectrum.

Fed to Continue on Hawkish Course?

U.S. central bank chairman Jerome Powell has represented, for many, the face of U.S. monetary policy throughout the past two years of the COVID-19 pandemic. As businesses from nearly every sector faced significant obstacles in 2020, the Federal Reserve under his leadership kept interest rates low in the hopes that investment would be stimulated and a more traumatic recession could be avoided. However, now that Consumer Price Index (CPI) data has shown the extent to which inflation has risen in recent months, the Fed seems to have changed course.

While inflation has been a concern since last year, as recently as last December many in the United States were still referring to the rise in prices of consumer goods as ‘transitory’. This indicated their belief that the phenomenon was due to supply chain and other pandemic-related issues and would soon cease its upward trajectory. However, this supposition has not been borne out by the data, and inflation has instead progressively tightened its hold over Americans’ pocketbooks.

In March, responding to justified worry over U.S. inflation, the Federal Open Market Committee, which sets the course for American monetary policy, raised interest rates for the first time since 2018. While March’s interest rate rise was 0.25%, many expert analysts are expecting an even higher interest rate hike to be announced at Powell’s press conference later today, of 0.5%.

Furthermore, the Fed could move to begin reducing its balance sheet, the sum total of its assets and liabilities. Some observers are predicting that Powell will announce a program of cutting the U.S. central bank’s $9 trillion balance sheet by $95 billion every month starting in June.

According to some experts, inflation in the United States may have already peaked, but it is as yet unclear both whether this analysis is accurate, as well as how quickly this could affect the near-term trajectory of interest rate hikes. According to data obtained by the Bureau of Labor Statistics, inflation reached 8.5% in March of this year, over four times the ‘ideal’ rate of 2% agreed upon by most economists.

The general consensus among experts is that Fed Chairman Powell will announce a 0.5% interest rate hike today, but opinions are divided as to whether even more aggressive monetary policy changes are in the cards. While changes in the interest rate can have a significant influence on major Indices’ trading outcomes, some say that the Federal Reserve’s first priority at the moment is bringing down record inflation rates, irrespective of the effects on Wall Street.

Markets Await Decision

As many savvy traders may already be aware, the stock markets in New York have been having a rough time in 2022. The S&P 500 (USA 500), Nasdaq (US-TECH 100), and Dow Jones (USA 30) have all declined in value since New Year’s due to a few factors. While the continuing coronavirus pandemic and conflict in Ukraine have contributed to an overall risk-averse market mood, the effects of these two are hard to disentangle from, and are interconnected with record U.S. inflation. 

With market actors not yet aware of where interest rates set by the Federal Reserve are likely to head beyond this month’s meeting, it remains to be seen how traders will react if Powell indicates that increased hawkishness is the name of the game. Drops in the share prices of some of the biggest names in tech have had an outsized effect on key U.S. Indices, and a course of steady interest rate increases over the near term could further limit these markets’ potential to recover.

While significant uncertainty among traders and investors alike seems to be prevailing at the moment, the conclusion of the Federal Reserve’s meeting and subsequent press conference today could shed some light on where the U.S. economy could be headed in the coming months. Market watchers will have to wait and see whether analyst predictions regarding the Fed’s decision will be borne out this afternoon.