The Federal Reserve is set to announce its next monetary policy move on Wednesday, 3rd May, at 2:00 pm ET. Meanwhile, the Chairman will host a press conference later at 2:30 pm ET. While the probability stands at the 5.00-5.25% range, Fed Funds traders believe in a 90% probability the central bank will increase the interest rate by 25 basis points. They also bet on a 30% chance for another 25 basis points rate hike in the mid-June report.
Generally, the next two Federal Reserve’s rate readings will distinguish whether the current borrowing cost rise is a dovish hike or a hawkish hike. Jerome Powell believes the Federal Reserve has taken the right approach. It’s been about a year since these aggressive interest rate hikes began, but the labor market remains relatively stable. Although initial unemployment claims have started to tick up, employment hit the mid-3% lows in decades.
Inflation appears moderate towards the banks’ targets, with the headline consumer price index falling below 5% from over 9% last summer. Besides, the Core PCE index has dipped to 4.60%. The Federal Reserve has now turned its focus to the Core PCE ex-housing since the inflation rate is lowering. But financial experts are still concerned about whether the aggressive rate tightening will result in more spillover effects.
In any case, JP Morgan auctioned First Republic Bank this weekend, suggesting persistent turmoil in the banking system. Stakeholders believe the bank system's stress increases the odds of another 25 basis points rate rise from the Federal Reserve. In case of a 25 basis point borrowing cost increase, the stock market will quickly turn attention to the next rate move as traders anticipate the end of the rate hike cycle.
Higher chances are that the central bank will evade pre-commitment to any path. Wall Street experts say Fed officials believe future policy actions will be as impactful as individual rate changes. Thus, the coming Fed’s policy statement will be heavily negotiated and the most crucial step from the officials. Fed Chair Powell will shade more light on the future outlook 30 minutes after the central bank releases its statement.
Overall, traders have high anticipations for Powel’s press conference, as it has resulted in more volatility during the last few meetings. They are specifically hoping for insights into the future of interest rates. Other concerns from the stakeholders include the probability of cutting interest rate hikes this year and the level of turmoil in the banking system. These anticipations come amid Powell’s repeated downplay on ending rate hikes this year.
