The U.S. Federal Reserve is expected to be hawkish in terms of its key policy decisions it’s set to announce only minutes from now. But how would the market react if the Fed turns out to be not as hawkish?
What if the Fed is not as hawkish?
According to Virtus Investment Partners’ Joe Terranova, hawkishness from the central bank is already priced into the market. But if Chairman Powell chooses otherwise, it could fuel a rebound in the coming weeks. On CNBC’s “Halftime Report”, he said:
If he’s just as hawkish as the market expected, then a lot of the selling pressure in the laggards of the market across the board will continue, however, the upside surprise is there. If the Chairman is not as hawkish, the market will hold here at the 50-day MA, and you’ll get a nice snap back rally through the remainder of the year.
On the flip side, however, Gilman Hill Asset Management’s Jenny Harrington says a dovish Fed could scare the market more because an implication of it would be that the economy is weaker than many expected.
Two rate hikes are priced in
The U.S. Fed on Wednesday is likely to reveal plans of tapering at twice the pace as indicated before and two rate hikes next year, beginning roughly around May, both of which, as per Short Hills Capital Partners’ Steve Weiss, are priced into the market.
If they bring those rate increases forward more, more rate increases, and you also have to look at what their expectations are for inflation, which will also be in the dot plot. So, those are the factors more so than what Powell says that you should focus on.
During the same interview, Degus Wright also agreed that there was hardly anything new that could come from the U.S. Fed as a surprise for the market.
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