The U.S. central bank is expected to raise its target fed funds rate on Wednesday for the first time since the onset of the pandemic. Analysts and economists are hyper-focused on this key event, as the Russia-Ukraine conflict continues in Europe. If the Federal Reserve decides to increase the rate by a quarter percentage point from zero, investors wonder how stock markets, crypto prices, and investments like precious metals will react to the news.
A 25 Basis Point Increase Is Expected — Anxiety Revolves Around the Fed’s Next Moves
Last week, the world watched as financial sanctions were used against Russia and the price of gold soared to an all-time high reaching $2,060 per ounce. Energy stocks, oil, and a myriad of commodities also jumped considerably in value during the last seven days. Cryptocurrency markets last week were lackluster, volume is down, and action remained flat after a brief price jump on March 9, 2022.
Stocks on the other hand suffered a great deal and indexes like the NYSE, Dow Jones, S&P 500, and Nasdaq all closed the day in red on Friday afternoon (EST). Making matters worse, data stemming from the U.S. Labor Department’s Consumer Price Index (CPI) report shows consumer prices tapped a 40-year high at 7.9% in February.
A key event this week for all of the aforementioned markets will be on Wednesday. That’s when the U.S. Federal Reserve is expected to increase the benchmark bank rate for the first time since the Covid-19 pandemic. The increase is anticipated to be a mere quarter-point hike, but investors will also be wondering if the Fed reveals a series of rate hikes for the rest of the year.
During a panel discussion on March 11, Oxbow Advisors managing partner, Ted Oakley, said he expects a 25 basis point increase this Wednesday.
“I want to look at what we might see happen with the Fed. Obviously, next week, we’re expecting a 25 basis point increase there,” Oakley said. “A lot of concern that we saw the markets still didn’t seem to be that settled about what the Fed might do next. How do you plan around this? How do you position your portfolio when you’re not really sure how aggressive the Fed will be?”
Fed Watch Tool Predicts 25 Basis Point Increase, Report Shows Futures Markets Predict an ‘Aggressive’ Series of Rate Hikes
CME’s Fed Watch Tool is also expecting the U.S. central bank to raise rates by 0.25 percentage points. A Bloomberg report published on Sunday further details that after the first rate hike, the Fed could get more “aggressive.”
“Futures markets show around 165 basis points of tightening this year, or the equivalent of at least six quarter-point increases,” Bloomberg’s Craig Torres and Olivia Rockeman explain. At the House Financial Services Committee meeting on Tuesday, Moody’s Analytics chief economist Mark Zandi said he thinks it’s a good idea to move forward normalizing rates. At the meeting, Zandi stated:
To ensure that the economy continues to expand and avoid recession, I do think that it’s important to normalize interest rates.
Crypto Markets Remain Lusterless, Gold Sheds 3.49%, Monetary Easing Tactics to End
On Sunday afternoon, the price of one ounce of gold is lower than the $2,060 high it saw last week. An ounce of gold is currently exchanging hands for $1,980 per ounce of .999 fine gold. At the time of writing, the global crypto market capitalization is hovering around $1.78 trillion down 2.6% during the last 24-hours.
Crypto markets remain lusterless with only a few tokens gathering single-digit gains on Sunday. Digital currency supporters will be watching the Fed’s move on Wednesday to see if it affects crypto markets negatively. As far as most reports are concerned, there’s not much of a chance that the central bank won’t raise its target fed funds rate this month.
Just like the futures markets and CME’s Fed Watch Tool, most analysts and economists agree that Fed chair Jerome Powell’s and the U.S. central bank’s monetary easing tactics are coming to an end.
“[Jerome] Powell can’t really afford to be dovish at this point, it would be inconsistent with what sound policy is and where policy needs to be heading,” Derek Tang, an economist at Monetary Policy Analytics in Washington said on Sunday.
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