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Fed expected to raise rates by 75 basis points for 3rd time since June

Yahoo Finance's Jennifer Schonberger reports on expectations for the Fed's policy decision and press conference from outside the Federal Reserve building.

Video Transcript

INES FERRE: It's all about the Fed today. As investors await an expected 75 basis point rate hike and projections for the federal funds terminal rate, also known as the dot plot, let's bring in Yahoo Finance's Jennifer Schonberger joining us live from Washington, DC with an appropriate background there. Jen.

JENNIFER SCHONBERGER: Hey there. Good morning. That's right, I am here live from the Federal Reserve in Washington. And Fed policymakers are meeting right now in this building behind me, and they are set to announce another super sized rate hike when that meeting concludes at 2:00 PM this afternoon. Investors mostly expect the Fed to raise by 75 basis points, though they were pricing in an 18% chance as of this morning that they could go by a full percentage point, according to the CME Group.

In the face of the highest inflation in 40 years. If the Fed were to raise by 75 basis points, that would bring the Fed funds rate to a new range of 3% to 3 and 1/4%. That would be up from the current range of 2 and 1/4 to 2 and 1/2. Another 75 basis point rate hike would mark the third in a row since June and would be unprecedented since the Fed started explicitly targeting the Fed funds rate as their monetary policy target since the late 1980s.

Now, the Fed likely to signal that they will raise interest rates more aggressively and expects rates to be higher for longer when they release their individual interest rate projections known as that so-called dot plot. Investors are expecting the Fed to project that they will raise the Fed funds rate over 4% by the end of this year, according to the CME Group. However, how long and how quickly they get there and how high they hold the Fed funds rate at those levels remains uncertain.

Officials also expected to release new projections for inflation, unemployment, and GDP, which will give us a window into their thinking onto why they're setting monetary policy the way they are and perhaps how tight monetary policy may be impacting the economy going forward. We'll hear more from Fed Chair Powell when he has his press conference at 2:30 this afternoon. Guys.

AKIKO FUJITA: Yeah, Jen, in many ways, that's really going to be the key, right? What we hear from Jay Powell in that press conference. The last time we heard from him at Jackson Hole, it was a pretty strong message, a short one, but to say we are sticking to this inflation is the number one issue. Are we expecting any shift in tone, given the data that we've gotten since then?

JENNIFER SCHONBERGER: Yeah, Akiko, I expect Fed Chair Powell to double down on that exactly. The last time we heard him spoke before the blackout period began ahead of this meeting, the Fed Chair did just that, in fact, invoking former Fed Chair Paul Volcker, who is famous for breaking the back of inflation. And I see no difference in the approach that I expect to hear from the Fed Chair this afternoon.

AKIKO FUJITA: OK, I know you'll stay on top of it. We will, of course, have live coverage around all of that. Jen Schonberger live for us from Washington, DC. And Ines, of course, we're going to be watching the market reaction. Interesting to see all three majors up today. When you think about the last few Fed decision, that's kind of been the pattern where we've seen investors kind of run up against an expectations here.

You could argue that expectations were really reset on the back of that Jackson Hole message. What investors will be looking for today, 75 basis points, a very, very slight percentage, expecting 100. It'll be interesting to see what happens if it moves in that direction.

INES FERRE: Yeah, that's right. And so we have seen stocks drifting higher. And we tend to see a little bit of that Fed drifted that you see during the session on the Fed day. However, we are expecting that 2:30 pressure, that's when you really start to see some of the fireworks really in Jay Powell's comments.

I mean, the last time, we heard him say that the Fed is going to be data dependent going forward and basically ditching forward guidance. So that's really what had set off the markets in subsequent sessions after that. We'll have to also see what happens tomorrow because we tend to see some fireworks once Jerome Powell starts speaking and then sometimes the day after as well.

AKIKO FUJITA: Yeah, and what we've heard from Fed officials, not just Jay Powell, but other officials, who've said repeatedly that it's not just about one data set. It's not just about one month. They need to see data consistently showing that inflation has started to cool down. You could argue we haven't necessarily seen that yet, especially with that last CPI print, which came in much hotter than expected. But a reminder to our viewers, of course, we'll have that live press conference for you coming up at 2:30 PM this afternoon.