OPINION
Market Rating Before FOMC MeetingJan 31
Market Note: The First FOMC Meeting of 2022
The Committee is not expected to make any changes to its federal funding target, which is in the range of 0 to 1/4 percent. However, due to the hawkish statements from committee members on consumer inflation, which has reached its highest level in the last 40 years in the United States, it is certain that the Fed will indicate that it will raise rates in March.
At this point, Fed Chair Jerome Powell's speech at 21:30 (GMT+2) will be critical. Powell is expected to provide more detailed guidance on the process of shrinking the central bank's balance sheet, which exceeds $8.8 trillion, and his thoughts about the asset purchases and interest rates will set the tone in prices.
If Powell implies that the Fed will increase the pace of tapering yet the rate hikes will be slower, stress levels will decline in the markets, in which prices move according to the expectations that the Fed will increase rates at least 5 times within 2022. On the other hand, it is possible to observe a more positive mood for the markets, in case the Fed Chair share that a few rate hikes will be enough to keep inflation within the targeted path.
However, Powell's signal of a more severe rate hike process and an earlier-than-expected quantitative tightening process may lead to a strengthening of treasury rates and the continuation of the selling wave in the stock market.
