The main headline for investors this week will be the Fed’s interest rate decision this Wednesday afternoon.
Most analysts believe that a rate hike of 0.25% is likely. This would be the first rate hike by the fed in over four years.
The high inflation makes it almost certain that there will be some kind of hike. But could it be more than analysts predict?
Just for the sake of argument, I will present the argument that tomorrow could be more hawkish than expected.
2022 has certainly been the year of surprises so far.
Some believed that inflation was transitory. That proved to be wrong. Others believed a war in Ukraine would never happen. That prediction was sadly incorrect. Now many including CNBC talking head Rob Sechan have called a bottom. That could very well be incorrect too.
St Louis Fed President Bullard has previously called for a full point percentage hike by the fall, “If, by mid-year, I assess that inflation is not going to moderate as expected, then I would support removing accommodation at a faster pace over the second half of the year.”
“The bottom line is we will proceed but we will proceed carefully as we learn more about the implications of the Ukraine war,” Fed Chairman Jerome Powell told the House Financial Services Committee on March 2.
The Russian invasion of Ukraine has clouded the inflation picture since the last FOMC announcement. Energy prices and wheat, grain commodities have soared. This only adds to the bleak economic picture for the year ahead.
There is certainly a large gap between the opinions of the most hawkish, dovish Fed chairs.
The door is open to a very rough .50bp surprise tomorrow. Bullard hardly slammed the door shut on the possibility when he was last quizzed about rate hikes.
While Powell was under questioning from House Financial Services Committee members, he stated: “To the extent that inflation comes in higher or is more persistently high than that, we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”
The Fed will release its policy decision and a set of economic projections at 2pm EST tomorrow. This will be followed by a Powell press conference at 2:30pm.
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