The markets are trying to anticipate whether the Federal Reserve is leaning toward a 25 basis points hike or a 50 basis points for its Interest Rate Decision in March. A rate hike is all but guaranteed, but the exact value of the hike is up in the air. The decision is due on March 16, so there just under a month for investors to analyse the comments of Fed officials and set their positions.
With uncertainty surrounding the Fed’s decision, the USD and US stocks will possibly be in for a volatile ride. Investors will be constantly rejigging their positions as new information presents itself in the lead up to the event. Immediately after the event, trading will likely appear exaggerated.
Who is on the side of a 50 basis points hike?
Earlier in February, rate futures were pointing toward an expectation that the Fed would choose a 50 basis points rate hike to combat 40-year-high inflation in the US.
Remarks from St. Louis Fed President James Bullard was one of the main culprits for this expectation when he called a 50 basis points rate hike in March a "sensible approach". Producer Price inflation hit 9.7% YoY in January 2022, contributing to the market's expectations for an unusually hawkish rate hike.
Is a 25 basis points more likely?
However, expectations for a 50 basis points rate hike have cooled recently. Fed officials have begun pushing back on the probability of a rate hike exceeding 25 basis points out the gate. New York Fed President John Williams recently noted that he doesn't see "any compelling argument to take a big step at the beginning,". Cleveland Fed President Loretta Mester sides with Williams with this assessment but doesn't "like taking anything off the table".
What are you expecting the Fed to do on March 16?
