Fed expected to raise rates by 50 basis points for first time in 2 decades
Yahoo Finance Live’s Brian Cheung discusses what to expect from Wednesday’s FOMC meeting.
Video Transcript
JULIE HYMAN: There's one other thing going on today that you should probably pay attention to. That's the Federal Reserve. It is meeting, of course, to discuss its next moves amidst soaring inflation. 50 basis point rate hike is broadly expected to be announced this afternoon. Yahoo Finance's Brian Cheung, he's back in DC because the meeting is in-person once again. No more Zoom Federal Reserve meetings.
So Brian, what can we expect?
BRIAN CHEUNG: Yeah. Well, it's a bit of a cloudy day here in DC, but it's going to be as clear as it could be from the Federal Reserve to raise interest rates by 50 basis points at the conclusion of the meeting today. Now, for historical reference, that has not happened. The Fed has not increased by a half point since May of 2000. So it's been over two decades since we've seen a dramatic move.
Same situation as we saw in May 2000, where inflation is the reason for the Fed choosing to go with what I'm calling that king-size bump. But the difference is that, whereas inflation was above 2% in May of 2000, now it's currently almost at 7%, at least as measured in the personal consumption expenditures index. So the Federal Reserve is going to be very much predictable in terms of their action today.
The question is, what could they do down the line. Now, there are two things to watch for. First of all, the balance sheet policy. We already know the Fed had begun preliminary discussions in their last meeting in March to begin a process of winding down their asset holdings by the pace of about $95 billion a month. That would be ramped up over the course of three months. We'll probably get the finalized details of how they want to do that in today's meeting.
But another thing to watch for is the Fed chairman's press conference, where there's been some chatter over whether or not he will try to leave on the table or take off the table even more aggressive move in future meetings. That could be, for example, a 0.75% interest rate increase. I guess you might want to call that maybe a mega-bump or a giga-bump. Either way, we'll have to listen in for that press conference commentary-- again, in-person here in Washington DC.
That's going to kick off at 2:30. The press statement will come out at 2:00 PM. And we'll have the full coverage of all of that here on Yahoo Finance.
BRIAN SOZZI: And Brian, you know, this really has major implications, of course, because the jobs-- as Brian was saying, really, of course, this has major implications for the jobs report on Friday. Because if Powell comes out here and signals in that press conference that a 75 basis point rate hike is not off the table and that jobs number comes in hot, I can't see how the market would like that.
BRAD SMITH: In a good news is bad news kind of environment, like we find ourselves in, good news on the economic front and the data that we've seen and monitored that the Fed is no doubt going to be ingesting but then continues to spell out how much they might lean into that to continue the path of high rate hikes, to your point, 75 basis points. That was the CME FedWatch Tool probability, actually, the highest probability that we had seen. But we'll see what comes out in this meeting, and then going forward from here, what that tone and tenor might look like from the Fed.
