Fed’s Meeting: What to Expect for Markets
Over the last six weeks, investors have grown increasingly uncertain about U.S. monetary policy and its impact on financial markets.
While the Federal Reserve is expected to maintain current interest rates, Chairman Jerome Powell’s responses to inquiries during the meeting could still influence market sentiment.
Powell’s statements are likely to align with his previous remarks at the Jackson Hole symposium and the July press conference. However, market analysts emphasize the importance of the Q&A session with reporters and the updated “dot plot” of interest rate projections, which could introduce market-moving news.
Despite the meeting’s perceived insignificance, it holds significance as indicated by the low Cboe Volatility Index (VIX), suggesting market complacency, which can make it vulnerable to negative shocks.
Investors anticipate a potential rate cut by the Fed in the middle of next year. Any deviation from this expectation could impact U.S. stocks, potentially boosting Treasury yields and the U.S. dollar.
Liz Ann Sonders of Schwab suggests that the post-meeting press conference’s Q&A session may provide valuable clues regarding the duration of rate hikes and rate cut expectations in 2024.
Recent data suggests the U.S. economy might be responding to the Fed’s aggressive interest rate hike campaign, with rising bankruptcies and signs of a cooling labor market. Inflation has also increased for two consecutive months, raising concerns about stagflation.
Powell may need to address these concerns and investors’ rate cut expectations. Premature assumptions about a policy pivot last summer significantly impacted the market, and a repeat could present challenges for stocks.
Traders anticipate the Fed maintaining interest rates during the upcoming meeting, with even odds for another hike later in the year.