Market investors globally have a close watch on the US Federal Reserve’s meeting that decides on the policy rates. The Federal Open Market Committee’s (FOMC) next meeting will take place on May 2-3, 2023. On May 3 at 2:00 PM ET, the Fed will announce its decision on interest rates.
Fed Chief Powell is expected to hike rates by 25 bps to take the federal funds rate range to 5% to 5.25%, the highest level since 2007. However, what is not known is how dovish will Powell sounds during the commentary following the rate decision. The stock market will focus on guidance from the Fed for the future path of rates. A global equity rally may erupt if the market sees a pause by the Fed in its subsequent meeting in June. However, any hawkish signals from the Fed may give negative surprises to the markets.
A pause by the Fed is expected by the market, especially on account of the slowing down of the economy and the banking crisis which still remains far from over. Although Fed officials had hinted at a rate cut only in 2024, some analysts and experts are looking at a Fed Pivot in the second half of 2023. However, according to Morgan Stanley’s Michael Wilson, a fervent Wall Street bear, stock market investors hoping for a Fed rate cut in the second half may be disappointed later this week.
The S&P 500 has risen in the last two months, despite banking sector upheaval and recession fears, as investors find solace in better-than-expected earnings and anticipate a moderate slowdown. Therefore, after ten consecutive rate hikes by the US Fed, the time has come for the stock market participants to closely watch the comments made by Fed Chairman Powell during the conference that follows the event.
Calls for a Fed pivot may soon start ringing as Powell speaks on Wednesday, May 3 with the markets turning more volatile if the message remains unclear in the shorter term.