Here’s everything the Federal Reserve is expected to do Wednesday
The Federal Reserve is expected to take a break from its streak of raising interest rates on Wednesday. After 10 consecutive meetings, the central bank is set to “skip” – their preferred term for pausing – in order to evaluate the impact of 5 percentage points worth of increases going back to March 2022. Despite speculation that this marks the end of the hikes, officials are simply pausing due to the decrease in the pace of inflation.
Former Fed official and finance professor at the Yale School of Management, Bill English, says the bank has “kind of set things up for a pause… but [they] very much want to avoid an outcome in markets where investors say, ‘Hurrah! The tightening cycle is over.'”
As always, there will be a lot of moving parts in Wednesday’s Fed action. Here’s what to expect:
If the rate-setting Federal Open Market Committee does choose to pause, that will leave the benchmark borrowing rate in a target range between 5% and 5.25%. In the market’s eyes, the recent consumer price index report, which showed the 12-month inflation rate falling to a two-year-low of 4%, suggests that this decision will be made.
The ‘dots’ and the economic outlook
If a hawkish pause indeed becomes the order of the day, that will send investors looking to the “dot plot”, a chart of individual members’ expectations of where rates are headed from here. The last time the dots were updated, there was a wide disparity among where members stood, with seven of 18 FOMC members expecting rates to go higher than the current range. Members will also update the Summary of Economic Projections, which lists the outlook for gross domestic product, the unemployment rate and inflation as gauged by the personal consumption expenditures price index.
The Powell presser
After the statement and projections are released, Fed Chairman Jerome Powell will be up next to field questions from the press and explain the intentions behind the actions. There’s wide expectation that he’ll take a cautious tone, emphasizing the importance of bringing down inflation rather than focusing too much on the FOMC deciding to pass on a rate hike.
Q: Why is the Federal Reserve set to pause on interest rate hikes?
A: The pace of inflation has decreased, prompting officials to evaluate the impact of the rate hikes on the US economy.
Q: Does this mean the end of rate hikes?
A: No, officials are simply pausing to evaluate the impact.
Q: What rate will the benchmark borrowing rate be at if the Federal Reserve does pause?
A: The rate will be in a target range between 5% and 5.25%.
Q: What are the ‘dots’?
A: The ‘dots’ are a chart of individual members’ expectations of where rates are headed from here.
Q: What will Fed Chairman Jerome Powell discuss at the press conference?
A: Powell will explain the intentions behind the actions and emphasize the importance of bringing down inflation.
Anticipated Actions of the Federal Reserve on Wednesday
The Federal Reserve is expected to take a breather and leave interest rates unchanged during its meeting on Wednesday amid a 10-meeting streak of raising interest rates. However, officials could still evaluate the pace of inflation waning, as well as massage the post-meeting statement in a way that doesn’t assume the policymakers have gone quiescent on inflation and set on halting the rate-hiking cycle. Investors will be looking at the “dot plot,” a chart of individual members’ expectations of where rates are headed from here, as well as the Summary of Economic Projections, which lists the outlook for gross domestic product, the unemployment rate and inflation. After the statement and projections are released, Fed Chairman Jerome Powell will host a press conference to explain the intentions behind the actions.