What to expect from today's Fed meeting?

A meeting of the US Federal Reserve System will be held today, at which the interest rate is expected to be raised by half a percent. This will be its second increase since 2018. The central bank will also begin a program to reduce assets in bonds by $95 billion per month, starting in June.

An increase in the rate by 50 basis points at once will lead to the fact that the target range of the federal funds rate will be from 0.75% to 1% (a basis point is 0.01%).

The market has long been ready for such «hawkish» rhetoric of the regulator, but now investors are concerned about whether the Fed intends to raise the rate even more in the future – by more than a subparagraph. It is worth noting that market expectations in general in relation to the funds rate are over 2.8% by the end of the year.

If the Fed does not focus on tougher actions, this may be perceived as a «dovish» mood and means that bond yields, which are moving in the opposite direction from the rate, may decline after the current meeting, and stocks, on the contrary, may rise.

US Economic Indicators

The economic growth of the United States declined by 1.4% in the first quarter, but economists believe that it was distorted by trade data. GDP is expected to recover in the second quarter.

The Fed's March forecast expects core inflation to reach 2.3% by 2024 and return to the Fed's 2% target in the longer term. In addition, the forecast assumes the federal funds rate at 1.9% this year, and 2.8% in 2023 and 2024.

In March, inflation jumped by 8.5%, and economists believe that this is the peak of consumer price growth. At the same time, the rate at which inflation will return to normal will become a key factor in determining the vector of the Fed's further rate trajectory.