Fed rates decision to be Wednesday’s key focus


The mid-point of the week is looking a little light for company news, so investors will instead be focusing on the big macro event of the week, the latest decision on interest rates from the US Federal Reserve.

The Fed’s rate-setting body, the Federal Open Market Committee (FOMC), will conclude its two-day meeting on Wednesday, with this month’s meeting particularly important as it will include a new version of the committee’s economic projections and members’ updated forecasts for growth, inflation, and the much-watched ‘dot plot’ of forecasts for where interest rates will be at the end of this and the next few years.

For the moment, the headline Fed funds rate is 0.25%, where it has been since March 2020, with US$7.9trn of assets on the central bank’s balance sheet – 90% higher than before the start of the pandemic.

But there have been more calls from FOMC members to begin “thinking about thinking about” tapering down their bond purchases (aka quantitative easing), observed market analyst Marshall Gittler at BDSwiss, with other committee members expressing the view that there’s a “tight” jobs market, with a low number of unemployed relative to the number of jobs available.

The main focus will be on the dot plot, which is how the FOMC folk concretely express their view of monetary policy, with the last time seeing 11 out of the 18 people saying they thought rates would be unchanged until the end of 2023, compared to 12 out of 17 at the previous meeting.

“At the other extreme, there were two people at 1.125% in March, vs only one in December. So while the median dot remained unchanged, it’s clear that opinions were diverging. How much will they diverge this time? And in particular, will the median dot move up to 0.375%? Enquiring minds want to know!”

The market seems to be getting behind the Fed’s continued assertion that above-average inflation is transitory, partly caused by bottlenecks in the reopening of the global economy as lockdowns begin to ease.

“That does nothing to explain rampant house prices (or for that matter soaring prices across other asset classes ranging from equities to cryptocurrencies) but the Fed seems oblivious to, or at least reluctant to acknowledge, the unintended consequences of the tidal wave of cheap liquidity which it is helping to provide,” said analysts at AJ Bell.

“As such there seems little chance of the Fed talking about interest rate rises or easing back on its $120bn-a-month QE scheme, but economists and investors will be looking for even the tiniest indication of a shift in policy momentum.”

Meanwhile, other macro news that may draw interest will be UK inflation numbers and the latest US housing figures.

Significant announcements for Wednesday June 16:

Trading announcements: Tullow Oil PLC (LON:TLW), Origin Enterprises PLC (LON:OGN)

Finals: Best Of The Best PLC (LON:BOTB), Castings PLC (LON:CGS)

Economic data: Fed rates decision, UK inflation


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