Would Fed meeting affect U.S. stocks? Signal interest rate hikes may be coming

Molly wealth talk joined discussion · Dec 13, 2021 17:27

The Federal Reserve holds its two-day meeting on Dec.14 and 15. If the Fed decides to taper its bond purchases more quickly, it could also begin to raise interest rates faster. Investors will be closely watching for the Feds new interest rate forecasts.

There are three topics that investors would focus on.

Firstly, the central bank is expected to discuss speeding up the end of its bond-buying program.

ING says, With no opposition raised by other Fed officials, despite the uncertainty presented by the emergence of the Omicron variant, next week’s meeting look set to see the Fed announce an acceleration in QE tapering, with a $30bn reduction for January (to $60bn of purchases) and a further $30bn reduction in February.

This would mean the Fed wrapping up the programme by the beginning of March, leaving the Federal Reserve with $8.8tn of assets on its balance sheet.

Secondly, Investors will be closely watching for the Fed's new interest rate forecasts -- especially Dot Plot.
If the Fed decides to taper its bond purchases more quickly, it could also begin to raise interest rates faster.

“The Fed is running out of time,” said Tom Graff, head of fixed income at Brown Advisory, in a phone interview. “These inflation reads need to show a clear deceleration, or they’re going to wind up hiking as soon as the tapering is over.” Graff said he expects the Fed may raise its benchmark interest rate three times next year, potentially beginning as soon as April.

Economists at Bank of America expect the dot plot to show two rate rises in 2022, and six across 2023 and 2024. Michael Feroli, chief US economist at JPMorgan, said the Fed could proceed at a faster clip, with one more rate increase tacked on to each year.

(If you don't know how to analyze Dot Plot, you could read my another article: Analyzing Dot Plot and Understanding How the Fed Forecasts

Last but not the least, investors would pay attention to what Powell says.
With Jerome Powell having suggested that the “transitory” description of inflation should be “retired”, there are also going to be additional changes to the accompanying statement. They will acknowledge the upside surprises for inflation and the tighter jobs market but are set to keep the line “longer‑term inflation expectations remain well-anchored at 2 percent” even if the consumer survey evidence and break-even inflation rates on Treasuries, are less categorical.

p.s you could find more opinions from CNBC, Yahoo Finance, Bloomberg, etc.

$Dow Jones Industrial Average (.DJI.US)$ $Nasdaq Composite Index (.IXIC.US)$ $S&P 500 Index (.SPX.US)$ $Invesco QQQ Trust (QQQ.US)$ $NASDAQ 100 Index (.NDX.US)$

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