Global markets suffered from strong and violent movements at the beginning of the weekly trading, as we are waiting fed meeting today, and after inflation data recorded the strongest pace of rising since 1981.
The Fed will announce its interest rate decision, and the decision will come with the economic expectations and fed dot plot.
What do we expect from the US Federal Reserve's decision this week?
Initially, most expectations were in favor of the US Federal Reserve raising interest rates by 50 basis points for the second consecutive meeting in which the rate hike is taking place, in addition to the third time that the Fed is moving towards raising interest rates.
But after the inflation data released last Friday, which showed that consumer prices recorded the largest increase since the eighties of the last century, and specifically since 1981, there were calls for an acceleration of the rate of rising interest rates. Even expectations of a 75-basis point rate hike are looming.
According to the CME group tool, the markets are now pricing in a 75bp hike tomorrow with a probability of 98.1%, as markets and investors lose confidence in the US economy and the Fed fails to control the pace of inflation growth.
Even if it were only raised by 50 basis points, it would be the first time since 1994 that the Fed has raised interest rates twice in a row.
Are there other decisions we await from the US Federal Reserve?
The bank will likely continue to draw assets from its $9 trillion balance sheet. The bank will stick to its previously disclosed plan to allow up to $30 billion in Treasuries and $17.5 billion in mortgage-backed securities starting in June.
The bank previously indicated that reducing the monthly general budget will rise to $60 billion in treasury bills and $35 billion in mortgage-backed securities.
What about the economic outlook and fed dot plot?
What makes this week's meeting important is that it will not only be the decision to raise rates, but the decision will be accompanied by an update on the economic outlook and the interest path.
At last March's meeting, five of the 16 members expected the target rate for federal funds to exceed 3% in 2023. Expectations indicated that the US economy would grow by 2.8% in 2022, and by 2.2% in 2023.
Investors will closely monitor any potential changes in long-term inflation expectations. At the March meeting, expectations were in favor of a rise in the consumer spending index, the "favorite indicator of inflation by the US Federal Reserve", by 4.3% in 2022, and that its rise will begin to decline during 2023 by 2.7%.
Could the US Federal Reserve push the economy into recession?
The US Federal Reserve is now facing strong pressures between controlling the pace of inflation growth, which rose to record levels, and the negative repercussions resulting from the bank's strong monetary policies on the economy.
The Fed may have to push the economy into recession for a while to regain control of rising prices. Markets reacted negatively to fears of the economy collapsing into recession, as bond yields jumped, and stocks fell at a strong pace.
US 10-year Treasury yields touched 3.28% on Monday, surpassing the peak in 2018 to trade at the highest level since 2011, and interest rate futures indicated 175 basis points of tightening through September, meaning a 75-basis point increase in one of the next three meetings. to the Federal Reserve Board.
But the Fed should bear in mind that being overly aggressive in addressing persistent price pressures also carries risks, which could push the economy into a very severe recession that leads to higher unemployment.
The US Federal Reserve will not be the only one to tighten monetary policy at a rapid pace, but most central banks around the world are adopting these policies in an attempt to curb inflation.