Fed Funds futures have fully priced in a 75-basis point hike for today’s FOMC meeting, with policymakers expected to frontload more of its intended rate hikes in response to unrelenting inflationary pressures.
Investors are dreading the prospects of the Fed thinking it’s worth breaking the economy to quell red-hot inflation. Such hefty fears have driven the selloff that’s permeated various asset classes in the leadup to this week’s pivotal FOMC decision.
Markets have already had their say about the Fed’s more aggressive path forward for interest rates, evidenced by the carnage left in the wake of last week’s hotter-than-expected US inflation print. It’s now up to the Fed whether to confirm or shatter such expectations via incoming policy clues contained within the dot plot, economic projections, or likelier at Chair Powell’s press conference.
Another wave of selling across global financial markets could be unleashed, depending on how forcefully the Fed abandons its gradual approach to subduing US inflation. However, should the Fed defy the ultra-hawkish forecasts and insist that smaller, half-point rate hikes remain the way to go, that may help soothe nerves within the riskier corners of global markets, at least temporarily.
