Fed Watch: First Half Point Rise in 22 Years at a Price

Here’s what you need to know about the Fed’s interest rate decision on Wednesday.

FOMC announcement arrives in 2:00 PM ET and Fed Chair Jerome Powell’s press conference kicks off at 2:30 PM ET.

Too soon for Powell to be pacifist

“The bottom line, we believe, is that continuing to rise 50 basis points per meeting with both the housing market and inflation heading south rapidly will be a serious test for the Fed,” wrote Ian Shepherdson, a macroeconomist at Pantheon. We expect a signal at the June meeting that the pace of rallies will slow in the second half. But Mr. Powell is unlikely to suggest anything along those lines today. It’s just too early. “

It will also monitor any mention of the housing market.

“Housing is far beyond its weight as a driver of market and media views of the state of the economy, but the Fed’s reaction to the upcoming weakness is unclear.”

Financial conditions may mean peak fear of the Fed

“These financial conditions in the US and abroad have tightened, already doing some of the Fed’s work in its favour,” said Ben Lidler, strategist at eToro. Stock markets are in “correction” territory, real returns are positive, and 30-year mortgage rates are over 5%. While inflation expectations are initially regressing from highs above the Fed’s 2% target, inflation rates are close to 8.5%. We think we’re close to peak inflation and peak Fed fear, although we’ve been clearly surprised so far! “

The market is preparing to raise half a point

Markets have full price at A 50 basis point increase in the federal funds rate to the 0.75%-1% range. The rate hike “will occur at the same time as the Federal Reserve embarks on the long-awaited reduction of its balance sheet, which we believe will shrink by about $3 trillion through the end of 2024, from $8.93 trillion today.” RSM Chief US Economist Joseph Brusoulas wrote in a note.

The job market is still tight

Last Clear JOLTs The March opening showed an all-time high of 11.55 million, while the smoking cessation rate also picked up. Powell had been hoping for some slack in the labor market, which would give the FOMC more wiggle room in the pace of tightening.