Why this week’s Fed meeting could be ‘March madness’ for markets
Odds are high the Fed will move markets this week, no matter how hard it tries not to.To get more news about WikiFX, you can visit wikifx.com official website.
With the surge in interest rates and rebounding economy, the Fed‘s easy policies are in the spotlight, and increasingly the question has become when will it consider unwinding them. Fed Chairman Jerome Powell is likely to be asked questions about the Fed’s low interest rate policies and asset purchases during his press briefing, following the Feds two-day meeting that concludes Wednesday.
Powell is unlikey to be specific but what he says could rock the already volatile bond market, and that in turn could drive stocks. It could particularly hit growth stocks, if bond yields begin to rise.
“I think the last press conference, I think I watched with one eye, and listened with one ear. This one I‘m going to be tuned in to every word, and the markets are going to be tuned in to every word,” said Rick Rieder, BlackRock’s CIO for global fixed income. “If he says nothing, it will move markets. If he says a lot it will move markets.”
Rieder said the briefing should be “exciting to see,” and a challenge for the Fed to potentially begin changing communications on its policy. He said investors will be parsing every word. “This will be the March Madness,” for the markets, he said, referring to the highly anticipated collegiate basketball tournament.
Powell clearly has the ball, and what he decides to say Wednesday will dictate to edgy markets how soon the Fed might consider paring back its bond buying and even raising interest rates from zero.
Statement to stay mostly the same
The Federal Open Market Committee will release its statement at 2 p.m. ET Wednesday, after the meeting, and Fed watchers expect little change in the text.
But the Fed also releases officials latest forecasts for the economy and interest rates. That could show that most officials would be ready to raise the fed funds target rate range from zero in 2023, and a few members may even be ready to raise rates next year.
“We think they will sound a bit more optimistic but still cautious. That said, we think it will be hard for them to sound as dovish as they have been just because the facts on the ground are improving,” said Mark Cabana, head of U.S. short-rate strategy at Bank of America. “As a result of that, we think they‘re going to sound a little less accommodative than the market is expecting. We think they’re likely to show a hike at the end of 2023.”
Rieder said the Feds been steadily steering its easing programs, but now it needs to begin to communicate that it expects to change policy on both asset purchases and interest rates. He said the Fed has been explicit in that it would provide plenty of time between when it starts communicating change and when it acts.
“It strikes me its time,” he said. Rieder said his out-of-consensus view is that the Fed could start tapering back its bond buying in September or December, and it needs to begin discussing that now. The Fed buys $80 billion a month of Treasurys and $40 billion a month of mortgages.
He also said the Fed could also start raising short-term interest rates next year without hurting the economy. The Fed has not forecast any interest rate hikes until after 2023, but that could change in its latest forecast.
“They cant raise short interest rates this year, but as you get into the second and third quarter of next year, not raising short-term interest rates would be incongruous with what their economic projections should be,” Rieder said.