Stock markets could rocket if the Federal Reserve signals it will slow down its rate-hiking agenda during Wednesday’s policy meeting, the CEO of a leading financial advisory and fintech said ahead of the U.S. central bank’s two-day meeting.
The Fed is widely expected to raise its benchmark interest rate by three-quarters of a percentage point for the fourth consecutive time.
“The markets have already priced-in that the Fed will hike its baseline interest rate range by another 0.75 percentage points Wednesday,” said deVere Group’s Nigel Green.
“Investors will be listening carefully to the words and tone. It’s not so much about the percentage points now. Much more important is what is said, how it is said, and how it is perceived,” he said.
“We expect Chairman Jerome Powell to sound hawkish as he reasserts the Fed’s vow to fight still stubbornly hot inflation,” Green added.
Whilst this would normally create jitters in stock markets and push bond yields higher, it might not happen this time, the deVere boss explained.
“This is because we also expect the Fed will signal it will slow down its rate-hiking pace before winding it down in, possibly in March. This prospect will excite stock markets.”
Green said Powell will be walking a fine line Wednesday of trying not to get the markets too excited about the potential scenario of less aggressive rate-hiking – hence the likely hawkish tone he will still adopt.
The central bank’s rate rises have prompted a significant drop in home sales and the first real price declines in more than a decade. Wage growth has put-off firms hiring and investing.
“Although the Fed will still want more hard data, there’s a feeling that we’re moving in a direction toward the central bank being able to take its foot off the brake of the economy,” said the deVere CEO.
“Markets always look ahead and we expect them to be boosted by a Fed which is facing growing pressure to stand down on interest rate hikes,” he concluded.