19 september 2022 | Macroeconomics | Announcements

This week’s new data: Fed is in the spotlight

Another significant interest rate hike is expected to occur this week, which the markets will have to deal with due to continuing activities of the authorities aimed at inflation curbing.

The main attention of market participants will be drawn to a two-day meeting of the Federal Reserve, which is planned on September 20-21. During the meeting, the officials are forecasted to raise their benchmark policy rate by 75 basis points, which will be the third succeeding hike like this. The event will take place after discussions on September 21 at 2:00 p.m. Eastern Time.

A subsequent speech by the Fed’s Chair Jerome Powell is also among events important for Wall Street, as well as the new data on the economic forecasts of the U.S. central bank officials and the updated dot plot reflecting each authority’s expectations for the key short-term interest rate of the central bank.

As it was said by analysts from Bank of America headed by Michael Gapen, the central bank members are probably to change their point of view towards the growth, this time expecting it to be less, while forecasting a growing rate of unemployment and a raise of a terminal rate. According to their note, the main direction of inflation won’t show any considerable change, and a possibility of a hard landing is getting higher, although an average forecast is expected to suggest a soft landing.

The information obtained from the Fed’s released forecasts might aid in making a conclusion on whether there will be any relieving for the markets after the last sell-off or dramatic declines will continue. The figures of all three main indices for the past week turn out to be the worst since the first month of summer. As a result of the previous week, the benchmark S&P 500 index declined by 4.7%, the Dow Jones Industrial Average decreased by 4.1%, while the tech-heavy Nasdaq Composite showed an even larger decline, falling by 5.5%.

Recently registered inflation rates, which turned out to be higher than expected, have provoked another thread of pessimism about the central bank’s actions on raising the interest rate, and the general possibility of these actions to slow down the economic growth.

According to a report from the Bureau of Labor Statistics, a growth of The Consumer Price Index (CPI) by 8.3% in comparison with the last year and by 0.1% in relation to the previous month was registered in August.

Such influential figures of Wall Street as Goldman Sachs, Bank of America and Nomura have lifted their expectations on the interest rate, all while forecasting a growing possibility of a hard landing, which implies a significant decline after a period of fast growth.

According to a statement made by Goldman Sachs, there is a risk of another decreasing of the stock market by 26% in case the Fed’s actions on raising the rate lead to recession. As said by Goldman, if only an intense recession accompanied by the Fed’s relevant response will curb the inflation, the side effects resulting in a considerable decrease of both equities and government bonds are still highly probable, even in comparison with the damage already known.

Other countries’ central banks meetings are also arranged for this week. On Thursday, September 22, these events are planned in Japan, England, Norway and Switzerland.

Furthermore, an update of several key indicators of the housing market is expected throughout the week. The mentioned indicators include the figures on building permits, housing starts and existing home sales. In addition, there was an increase in mortgage rates to the level of 6% registered last week, which is a record high since November 2008. This added to the already existing pessimism about the mortgage availability.

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