Fed juggles between rising inflation and restoring calm

Yahoo Finance's Jennifer Schonberger joins the Live show to discuss what the market wants from the Fed versus what the central bank will actually do.

Video Transcript

RACHELLE AKUFFO: All right, turning now to our top story. The Fed's decision today closely watched after more than a week of instability in both banks regional and abroad. Now all this after Silicon Valley Bank's collapse created a contagion effect with repercussions felt around the world.

Here with more, Yahoo Finance's Jennifer Schonberger. Hey, Jen.

JENNIFER SCHONBERGER: Good morning, Rachelle. Fed officials meeting right now in arguably one of the most uncertain policy meetings in years. Typically going into a policy meeting, Fed officials clearly telegraph their intentions for the policy meeting, but we were in a quiet period when Silicon Valley Bank failed, touching off contagion in the banking sector, ultimately leaving a lot of question marks around what the Fed will do today.

Before Silicon Valley Bank's failure just two weeks ago, Fed Chair Powell had opened the door to what markets interpreted as a 50-basis-point rate hike. And given strong CPI and jobs reports from February, that might have been on the table absent a banking crisis.

Today, markets now largely expect the Fed to raise its benchmark interest rate by a quarter percentage point to a new range of 4 and 3/4% and 5%, but there are a range of views. In the 25 basis point rate hike camp, we've got Piper Sandler, JPMorgan, Morgan Stanley, and Wilmington Trust, all noting that high inflation keeps pressure on the Fed to hike. In the no-hike camp, Goldman Sachs expects the Fed to pause, citing stress in the banking system. This down from their previous call for a 25-basis-point rate hike.

Now one outlier, Nomura Securities, which is calling for a 25-basis-point rate cut and a halt in the Fed's quantitative tightening program in March due to the financial-stability risks in the banking system.

Now, questions are also swirling about what sort of combination the Fed could pull here. Is it raise by 25 basis points and stop QT, or is it raise by 25 but lower their interest-rate expectations significantly?

Today, investors will receive officials' new projections for how high the central bank expects to ultimately raise rates. Three weeks ago, Fed Chair Powell had signaled rates would need to be raised higher than the range of 5% to 5 and 1/4% penciled in back in December. We will understand just how those bank failures are influencing the Fed's monetary policy when that decision comes down at 2:00 PM Eastern followed by the Fed chair's press conference at 2:30 PM.

The suspense is killing us, I know. Rachelle, back to you.

RACHELLE AKUFFO: Indeed. It certainly seems to be killing some of the mood in the markets at the moment the closer we get. Jennifer Schonberger there. Thank you so much.