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Investors gear up for 75-basis-point rate hike, U.S. dollar declines

Yahoo Finance's Ines Ferré and Akiko Fujita discuss Wall Street expectations for the Fed meeting this week.

Video Transcript


INES FERRÉ: All eyes are on the Fed this week. The Fed rate decision this week, a 75 basis point hike is baked-in but money markets haven't discounted a full 100 basis point move. That last time that happened was over four decades ago under then-chair Paul Volcker. And a lot have been compared to Paul Volcker and Jerome Powell basically channeling his inner Volcker and the hawkishness that he has really talked about Volcker in previous speeches, et cetera.

AKIKO FUJITA: Yeah. And we know the Fed is going to be squarely focused on inflation. Jay Powell has made that very clear in the lead-up to this meeting. And because of that, we've kind of seen the markets a little rattled. When you think about where the CPI print came in last week it was higher than most people were expecting, and you've seen sort of the rates move up as well.

Worth pointing out today we've seen some big moves in the bond markets. When you look at the 10-year yield hitting its highest level there since 2011. So there's going to be a lot, obviously, all eyes moving to tomorrow, the decision coming down on Wednesday as well. Worth noting here that expectations of higher rates and slower growth now leading Goldman Sachs to cut its GDP forecast for 2023 over the weekend, saying they now see growth of 1.1%. So in general, we have seen a bit of a pullback in expectations. Of course, it's all going to depend on the commentary we get from the Fed coming up on Wednesday.

INES FERRÉ: Yeah. And I think what investors really are wondering is are the markets going to go lower? Because we saw that downdraft last week, we saw what markets did on Friday after that CPI report earlier in the week last week. And so they really are wondering, are my equities protected? How much lower can they go? And Ann Berry of Threadneedle had been on last Friday saying that she could-- she sees 10% to 15% lower for the markets. I wrote a piece on where analysts had been talking about are we going to be testing the June lows, that was around 3,066 for the S&P 500. And several of them have said we're testing them or perhaps punching down below them.

AKIKO FUJITA: Yeah. I mean, you'd imagine, right, last week after the big pullback that we saw in the latter half of the week, how much of that was overdone? What are we going to see going into Wednesday? I mean, as we said at the top of the show, the expectation is 75 basis points, some calling for 100. Although, it's been a very long time since that's happened so obviously, something we're going to continue to watch this week and what is really going to be a big week with the Fed being a focus but--