Business

Here’s everything the Fed is expected to announce, including the biggest rate hike in 28 years

US Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington, DC on May 4, 2022.

jim watson | AFP | Getty Images

On Wednesday, the Federal Reserve is expected to do something it hasn’t done in 28 years: raise interest rates by three-quarters of a percentage point.

In response to soaring inflation and financial market volatility, the central bank will raise the rate banks charge themselves for overnight borrowing to a range of 1.5% to 1.75%, which had not been the case since the start of the pandemic crisis.

This rate trickles down to consumer borrowing, which impacts virtually all adjustable rate products such as credit cards and home equity loans.

Along with the rate hike, here’s a quick look at what the Fed is likely to do:

  • Adjust its future outlook for interest rates via its dot plot of individual members’ expectations.
  • Update its outlook for gross domestic product, inflation and unemployment. Economists believe the Fed will lower its expectations for GDP this year while raising its forecasts for inflation and the unemployment rate.
  • Change the wording of its post-meeting statement to reflect current conditions, namely that inflation is proceeding at a faster pace than expected, requiring more aggressive actions to contain price increases at their fastest level since December nineteen eighty one.

Goldman Sachs said new language in the statement could indicate that the Federal Open Market Committee responsible for setting rates “anticipates that it will be appropriate to increase the target range rapidly until it sees clear evidence.” and convincing that inflation is moderating”, which implies a high bar to return to [25 basis point] hikes.”

Following the FOMC meeting, Fed Chairman Jerome Powell will address the media. The decision is due at 2:00 p.m. ET and Powell will speak 30 minutes after that.

Powell will be called upon to explain the recent change in Fed rate expectations. He and other officials had insisted that back-to-back 50 basis point rate hikes would be the most likely path.

In fact, at his last press conference in May, Powell dismissed 75 basis points as an option, saying it was “not something the committee is actively considering.” A basis point is one hundredth of a percentage point.

Now, Powell could provide indications that several 75 basis point hikes are possible if inflation readings do not start to decline.

Here’s everything the Fed is expected to announce, including the biggest rate hike in 28 years

Source link Here’s everything the Fed is expected to announce, including the biggest rate hike in 28 years

Back to top button