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  1. Fed preview: Global stock markets expect 25 bps rate hike; focus on forward guidance

Fed preview: Global stock markets expect 25 bps rate hike; focus on forward guidance

Fed Monetary Policy: As the global stocks markets and the equity markets back home rally ahead of Fed meeting scheduled later in the day, top market analysts are expecting a 25 bps hike in interest rates in the Federal Open Market Committee's March meeting.

By: | Published: March 21, 2018 11:45 AM
Jerome Powell's will took over from Janet Yellen as the Chair of Federal Reserve. Analysts say that Jerome Powell is likely to announce the first rate hike signalling strengthening economy and the upbeat job market. (Image: Reuters)

Fed meeting preview: As the global stocks markets and the equity markets back home rally ahead of Fed meeting scheduled later in the day, top market analysts are expecting a 25 bps hike in interest rates in the Federal Open Market Committee (FOMC) March meeting. The meeting assumes special significance as it is the first one chaired by Jerome Powell who succeeded Janet Yellen last month. According to CME Group’s FedWatch tool  94.4 percent of the market participants expect a 25 bps rate hike. Analysts say that Jerome Powell is likely to announce the first rate hike signalling strengthening economy and the upbeat job market.

Dubravko Lakos-Bujas, head of U.S. equity strategy at J.P. Morgan said in a note that the upcoming FOMC meeting is preceded by a market crash, elevated volatility, rising negative sentiment around trade, while consensus view of the Fed remains hawkish. Apart from the rate hike the markets would be looking forward to Fed’s outlook and forward guidance. In a recent note, research firm HSBC said that the focus will be on new rate projections, adding that change in median projection of three hikes in 2018 seems unlikely.

HSBC added that Powell will look to ensure policy continuity in his first press conference as Fed chair. The central bank had raised interest rates modestly three times under Janet Yellen in 2017. Interestingly, Fed rate hikes were not very common previously as for seven years beginning in late 2008, the Fed had kept its benchmark rate at a record low near zero with the intent to encourage credit boost economic recovery from the financial crisis and the Great Recession. However, for nearly more than 2 years the central bank has been gradually raising its key rate to bring it closer to historically normal levels.

According to a Reuters report, the global markets have largely priced in three U.S. rate hikes this year, but some analysts suspect the Fed’s ‘dot plot’ of forecasts could shift up to four and spook risk assets. The markets will also closely track the economic outlook which is seen to be upbeat given strong consumer spending and investment in the United States.

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