Here’s everything the Fed is expected to do today

Construction workers outside the Marriner S. Eccles Federal Reserve Building, are pictured Wednesday, July 27, 2022 in Washington, DC.

Kent Nishimura | Los Angeles Times | Getty Images

There is not much uncertainty surrounding the Federal Reserve’s meeting on Wednesday, with markets widely expecting the central bank to agree to a third consecutive rate hike by three-quarters of a point.

That doesn’t mean there isn’t much intrigue, though.

While the Fed will almost certainly deliver what the market demanded, it has plenty of other items on its agenda that will catch Wall Street’s attention.

Here’s a quick summary of what to expect from the FOMC rate-setting meeting:

rates: In its continued quest to tackle hyperinflation, the Fed will almost certainly agree to a 0.75 percentage point rate hike that will raise the benchmark interest rate to the target range of 3%-3.25%. This is the highest rate on the fed funds since early 2008. Markets are pricing in little chance of a full one percentage point increase, something the Fed hasn’t done since it began using the fed funds rate as its primary policy tool in 1990.

Economic Outlook: Part of this week’s meeting will see Fed officials release a quarterly update on interest rate and economic forecasts. While the Economic Outlook Summary is not an official forecast, it does provide insight into where policy makers see the various metrics and interest rates. SEP includes estimates of gross domestic product, unemployment, and inflation as measured by the personal consumption expenditures price index.

Bitmap and Final Price: Investors will keep a close eye on the so-called individual member rate projection dotted chart for the rest of 2022 and subsequent years, with the version of this meeting first extended through 2025. That would include a projection of the “final interest rate,” or the point at which officials think they can stop Raising interest rates, which may be the most market-moving event in the meeting. In June, the committee set the final interest rate at 3.8%. It will likely be at least half a percentage point higher after this week’s meeting.

koi bowl: Federal Reserve Chairman Jerome Powell will hold his usual press conference after the conclusion of the two-day meeting. In his most notable remarks since the last meeting in July, Powell delivered a short, sharp speech at the Federal Reserve’s annual Jackson Hole seminar in late August stressing his commitment to lowering inflation and in particular his desire to inflict “some pain” on the economy. to achieve that.

New children in the building: One slight wrinkle in this meeting is the contribution of three relatively new members: Governor Michael S. Bar and regional presidents Laurie Logan of Dallas and Susan Collins of Boston.
Collins and Barr attended the previous meeting in July, but this will be their first planned SEP and dot. While the individual names are not tied to the outlook, it will be interesting to see if the new members are in line with the Fed’s policy direction.

The Big Picture

Put it all together, and what investors will be watching closely will be the tone of the meeting – namely how far the Fed is willing to go to tackle inflation and whether it is concerned about doing too much and pushing the economy into an even more severe recession.

Judging by the recent market actions and comments, expectations are for a hard line.

“Fighting inflation is one task,” said Eric Winograd, chief economist at Alliance Bernstein. “The consequences of not fighting inflation are greater than the consequences of fighting it. If that means stagnation, that’s what it means.”

Winograd expects Powell and the Fed to adhere to Jackson Hole’s stipulation that financial and economic stability depends entirely on price stability.

In recent days, markets have begun to let go of the belief that the Fed will only rise this year, and then start lowering by early or mid-2023.

“If inflation is really stubborn and it stays high, they may just have to grit their teeth and last the slump for a while,” said Bill English, a professor at Yale School of Management and a former chief economist at the Federal Reserve. “It’s a very difficult time being a central banker right now, and they’re going to do their best. But it’s tough.”

The Fed has hit some of its targets toward tightening financial conditions, with stocks plummeting, the housing market sliding into recession and Treasury yields rising to levels not seen since the early days of the financial crisis. Family net worth fell more than 4% in the second quarter to $143.8 trillion, largely due to a lower valuation of stock market holdings, according to Federal Reserve data released earlier in September.

However, the labor market remained strong and workers’ wages continued to rise, creating concerns about a wage and price vortex even as gasoline costs at the pump fell. In recent days, both Morgan Stanley and Goldman Sachs have acknowledged that the Fed may have to raise rates until 2023 to lower rates.

“The kind of door that the Fed is trying to get through, where it slows things down just enough to bring down inflation, but not so much that they imagine a recession, is a very narrow door and I think it’s getting narrower,” English said. There is a similar scenario where inflation remains stubbornly high and the Fed has to keep rising, which it said is a “very bad alternative going forward”.

The Fed will accept recession in the name of fighting inflation

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