More big US rate rises to come
Today’s rate rise will be the first time the Federal Reserve has hiked at consecutive meetings since 2006.
Deutsche Bank sees chairman Jerome Powell affirming market pricing that further half point rate hikes are ahead.
The bank’s US economists believe this will be the first of three consecutive half percentage point moves, which will eventually take the Fed fund rates to a peak of 3.6% in mid-2023.
They also expect an announcement that balance sheet rundown will begin in June, with a cap of $60 billion a month for Treasuries and $35 billion for mortgage backed securities.
Deutsche Bank commentator Jim Reid added today: “While the Fed might have already begun their hiking cycle seven weeks ago, the sense that they’re behind the curve has only grown over that time.”
Focus on Fed rates decision, Wall Street steady
Stock markets are trading sideways ahead of tonight’s Federal Reserve decision, when policymakers are expected to increase interest rates by half a percentage point.
Despite this being the largest rise in over two decades, the main focus for investors will be the Fed’s guidance on the path for interest rate hikes over the rest of the year.
Wall Street is pricing an end-of-year level of near to 2.5% as another half point increase is expected at the Fed’s next gathering before further rises at subsequent meetings as policymakers battle to bring inflation back under control.
Tight labour market conditions, which risk inducing a wage-price spiral and more persistent inflation, continue to be a concern after figures yesterday showed the number of job openings in the US rose by a bigger-than-expected 205,000 to a new high.
Oil-driven inflationary pressures also remain after Brent crude futures rose 1% to $106 a barrel on supply concerns created by a surprise drawdown in US inventories. The prospect of fresh EU sanctions targeting Russia’s oil industry added to the pressure.
The Federal Reserve decision is at 7pm, followed by a press conference with chairman Jerome Powell 30 minutes later.
Until then, investors appear content to sit on the sidelines after Wall Street indices traded moderately higher on Tuesday and are set for a flat session today. It’s a similar story in Europe, with the FTSE 100 index forecast to open unchanged at 7561.