US Fed meeting on September 20-21 is going to be different and important for the US stock market investors. The importance of the Fed’s September is more because, in addition to the rate hike decision that the Federal Open Market Committee (FOMC) will take, the projections are also going to be announced. The Fed’s projections are crucial because they will outline a likely policy course for the rest of 2022 and 2023.
It is widely expected that the rate hike could be 75 bps or even 100 bps considering the persistent August inflation numbers that were recently announced by the U.S. Bureau of Labor Statistics.
As far as Fed’s projections are concerned, the meeting participants submit their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2022 to 2024 and over the longer run.
The projections made by each participant are based on data that was available at the time of the meeting, as well as the participant’s assessment of the proper monetary policy, including the trajectory of the federal funds rate and its longer-term value, and assumptions about other variables that are likely to have an impact on economic outcomes.
Fed’s projections have their importance and provide direction to the market as well. But, will the economic indicators move as close to the Fed’s projections remains to be seen? Interest rates were expected to rise to 3.4% by December 2022 and 3.8% by December 2023, according to FOMC projections released in June. Since then, however, the CPI data has been very interesting. While the headline CPI has been fluctuating about 8%, the core CPI has accelerated, jumping from 5.9% to 6.3%.
It is a reality check for the US Fed as the economy is facing a price rise not witnessed in over four decades now. In 2022, the Fed has hiked rates by 225 bps so far. And, in such an inflationary environment, the US Fed is expected to deliver the biggest rate hike seen in the last 40 years.