In the middle of this week as noted here on the FOMC Calendar the FOMC chaired by Jerome Powell will most likely increase the short term federal funds rate by 25 basis points or .25%. … think your checking account interest rate.
CME Estimator at almost 100% .25-.50% increase
While the last FOMC meeting was approximately 2 months ago, what may seem like a decade given the events that have unfolded in the last 60 days, Powell in several speeches recently walked back the original 50 basis points or .50% thinking that many market participants had priced in.
Last week’s continued hot CPI report, has bond market participants pushing the probability up of further rate increases, and maybe even a higher 50 basis point rate increase this week that even the Fed has said cryptically would not occur.
As can be seen by this expanded detailed graph of the FOMC federal funds rate versus the two year treasury, the treasury market has rate increases priced in very far ahead of the FOMC.
Should the Federal Reserve increase by 50 basis points, with market participants for the most part not expecting that, turbulence would likely be the result.
This meeting is also accompanied by the economic forecasts also known as the dot plots of the Federal Reserve members, which are their expectations of future interest rates. Keep in mind these estimates fluctuate dramatically, but make for good information.
Look for more detailed information from us on the possibility of why the CPI has already neared the highest end of its range and will continue to roll over as we get copyright approval from a great new source to help explain what’s going on with that report. No doubt we are all feeling inflation costs especially at the food and the gas lines, but due to comparables the other nonparticipating inflationary pressures will likely over power the few extreme outliers.
Have a Great “All Eyes on the Fed” day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth