The U.S. central bank is expected to raise its target federal funds rate on Wednesday for the first time since the pandemic began. Analysts and economists are hyper-focused on this key event, as the Russian-Ukrainian conflict continues in Europe. If the Federal Reserve decides to raise the rate by a quarter of a percentage point from zero, investors wonder how stock markets, crypto prices, and investments like precious metals will react to the news.
25bp hike expected – anxiety swirls around Fed’s next moves
Last week the world saw financial sanctions being used against Russia and the price of gold soared to an all-time high reaching $2,060 an ounce. Energy stocks, oil and a myriad of commodities have also risen significantly in value over the past seven days. Cryptocurrency markets were lackluster last week, volume was down and the stock was flat after a brief price rally on March 9, 2022.
Stocks, on the other hand, suffered badly and indices like the NYSE, Dow Jones, S&P 500 and Nasdaq all ended the day in the red on Friday afternoon (EST). To make matters worse, data from the US Department of Labor’s Consumer Price Index (CPI) report shows consumer prices hit a 40-year high of 7.9% in February.
A key event this week for all of the aforementioned markets will take place on Wednesday. This is when the US Federal Reserve is expected to raise the benchmark bank rate for the first time since the Covid-19 pandemic. The increase is expected to be a mere quarter-point increase, but investors will also be wondering if the Fed reveals a series of rate hikes for the rest of the year.
In a March 11 roundtable, Oxbow Advisors managing partner Ted Oakley, noted he expects a 25 basis point hike on Wednesday.
“I want to watch what we might see happen with the Fed. Obviously next week we expect a 25 basis point increase there,” Oakley said. “A lot of concern that we’ve seen that the markets still don’t seem as determined as to what the Fed might do next. How do you predict that? How do you position your portfolio when you’re not really sure about the aggressiveness of the Fed?
Fed Watch Tool Predicts 25bp Rise, Report Shows Futures Markets Predict Series of ‘Aggressive’ Rate Hikes
CME’s Fed Watch Tool also expects the US central bank to hike rates by 0.25 percentage points. A Bloomberg report released further details on Sunday that after the first rate hike, the Fed may become more “aggressive.”
“Futures markets are showing about 165 basis points of tightening this year, the equivalent of at least six quarter-point increases,” Bloomberg’s Craig Torres and Olivia Rockeman said. At Tuesday’s House Financial Services Committee meeting, Moody’s Analytics Chief Economist Mark Zandi noted he thinks it’s a good idea to move forward with standardizing rates. During the meeting, Zandi said:
To ensure the continued expansion of the economy and avoid recession, I think it is important to normalize interest rates.
Crypto Markets Remain Dull, Gold Loses 3.49%, Monetary Easing Tactics End
On Sunday afternoon, the price of an ounce of gold is below the high of $2,060 reached last week. An ounce of gold is exchanging hands for $1,980 per ounce .999 fine gold. At the time of writing, the global crypto market cap hovers around $1.78 trillion, down 2.6% in the last 24 hours.
Crypto Markets remain lackluster with just a few tokens picking up single-digit gains on Sunday. Digital currency proponents will be watching the Fed’s decision on Wednesday to see if it negatively affects crypto markets. as much as most reports are concerned, there is little chance that the central bank will not raise its target federal funds rate this month.
Much like the futures markets and CME’s Fed Watch Tool, most analysts and economists agree that the monetary easing tactics of Fed Chairman Jerome Powell and the U.S. central bank are coming to an end.
“[Jerome] Powell can’t really afford to be dovish at this point, that would be inconsistent with what sound policy is and where policy should be heading,” Derek Tang, economist at Monetary Policy Analytics in Washington noted on Sunday.
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