Investors will be looking for clues when chair Jerome Powell holds a press conference after the Fed’s meeting on Wednesday. Investors are not expecting the Fed to make a move this week. That’s more likely to happen in March.
Higher interest rates make it more expensive for most people and companies to borrow money. That, in turn, leads to a slowdown in consumer and business spending, which usually puts a lid on rising prices.
Most on Wall Street think the Fed will want to take a slow and steady approach to combating higher consumer prices. Raising rates too sharply could hurt the economy and lead to further turmoil in a suddenly skittish stock market.
But a small faction of traders believe the Fed will raise rates more aggressively. Investors are pricing in a 5% probability that the Fed will boost rates by a half-point. (The remaining 7% believe the Fed will sit tight.)
“The Fed is losing the inflation battle and is behind where it needs to be, with painful economic consequences for the most vulnerable,” Ackman added.
Even some bankers are starting to think that the Fed could start with a big rate hike.
Van Saun noted that even though that’s not really priced into the market just yet, the Fed may want to act more quickly to tamp down further inflation pressures.
Still, most market participants think that the Fed can show that it is serious about fighting inflation with smaller rate hikes.
“We think it is unlikely the central bank will open the possibility of a [half-point] hike in March. We would regard more frequent hikes as the most likely risk,” said Luigi Speranza, chief global economist with BNP Paribas, in a report.
“This whole notion that somehow it’s going to be sweet and gentle and no one is ever going to be surprised … I think it’s a mistake,” Dimon said about the current expectations of slow, gradual and telegraphed rate hikes.
Get ready for tech earnings
But now it’s time for the tech sector, which has been leading the market for the past few years, to take center stage.
According to data from FactSet Research, 62% of the ratings by Wall Street analysts of tech and communications firms in the S&P 500 are buy ratings.