Amid the rising inflation worries, investors may see the first rate hike from the Federal Reserve in the post-pandemic era, reports Reuters.
The Fed has made its intentions clear to raise its benchmark overnight interest rate by a quarter of a percentage point at the end of its two-day policy meeting on Wednesday.
The Federal Open Market Committee (FOMC) will also share its inflation and economic growth projection for 2023 and 2024 to tame inflation that has surpassed expectations, running at three times the Fed's 2% target. The Fed's commentary for economic growth and outlook will guide the global markets in the short and long term.
If the federal funds rate outlook breaches the neutral level of around 2.50%, the FOMC members see a need to eventually curb the economy and run a higher risk of recession to bring rising prices into line.
As of December, most Fed policymakers projected that the rate would only need to rise to 2.10% by the end of 2024. Unemployment is down to 3.8%, low by historical standards, and households have cash from pandemic-related government aid programs.
The ongoing conflict between Russia and Ukraine has no clear resolution. It could buoy more inflation through increased energy costs and further disruption to supply chains. On the other hand, the pandemic's signs of easing could add momentum to a strong recovery.
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