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It's not what Fed does today, it's what it plans to do which is making the market nervous

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It's not what Fed does today, it's what it plans to do which is making the market nervous

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Almost all Federal Open Market Committee policymakers who have spoken since the last meeting in March have indicated varying degrees of comfort with a 50 bps hike. 

Market watchers across the world have their eye on the US Federal Reserve which is going to announce its rate decision later tonight. Almost all Federal Open Market Committee (FOMC) policymakers who have spoken since the last meeting in March have indicated varying degrees of comfort with a 50 basis points (bps) hike.
The Fed is stepping up its fight against inflation, which is at a four-decade high. It has already raised its key overnight rate once, the first such increase since 2018, and Wall Street is expecting several big increases over the coming months.
"A 50 basis point hike is now priced in by markets ... If the statement has a still more hawkish bias, then gold is likely to come under pressure once again," said OANDA senior analyst Jeffrey Halley to Reuters.
Along with the decision on raising the benchmark overnight interest rates, it will be important to note the plan details of reducing the Fed's $8.9 trillion balance sheet.
Forward guidance
The most important for the market watchers and economists will be the forward guidance on rates. The relevant sentence in the last FOMC statement was, "(US Fed) anticipates that ongoing increases in the target range will be appropriate".
In the press conference with Fed Chair Jerome Powell, the market expects the Fed Chair to convey the need to quickly return the Fed funds rate to neutral territory.
“All eyes are peering toward the FOMC meeting and a rate hike is an absolute given," Clifford Bennett, chief economist at ACY Securities, said in a commentary.
Market players might pick up bargains on the assumption that the rate increase has already been taken into account. But he added that “this excludes the on-going shock to consumers and particularly mortgage holders that will reverberate in an accelerating fashion throughout the economy. This ‘pain’ process will likely continue for the next one to three years in the real world"
Central banks in many countries are raising rates as inflation squeezes businesses and consumers. To counter that, regulators are raising costs for borrowing that had dipped to record lows during the pandemic.
But higher prices on everything from food to gas and clothing and on borrowing will likely slow consumer spending, crimping economic growth.
Weighing on all markets are the uncertainties brought by Russia's invasion of Ukraine.
Watch the accompanying video of CNBC-TV18’s Prashant Nair for more details.
With inputs from Reuters and AP
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