The Fed is about to make history again | CNN Business

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New York
CNN Business

All eyes will be on the Federal Reserve Wednesday as it wraps up a crucial policy meeting in Washington, DC, the outcome of which will have repercussions for millions of American families and businesses, as well as the economy, ahead of the midterm elections.

For the first time in 22 years the central bank is expected to raise interest rates by a half-percentage pointpart of a series of aggressive moves it’s anticipated to make in order to cool down the economy amid the worst inflation in 40 years.

In March, the Fed hiked its benchmark borrowing rate for the first time since late 2018, upping it by a quarter-percentage-point.

But since then, inflation has continued to rage, hitting a fresh 40-year high, While the labor market has recovered further, the Fed’s more common pace of quarter-percentage-point increases might just not cut it this time.

Economists – including some at the Fed – believe that America is nearing what experts call “maximum employment.” And with the Russia-Ukraine conflict still raging, price pressure on things like food and energy is unlikely to abate any time soon. This makes for the perfect tight monetary policy cocktail.

Even so, investors have already priced in the anticipated rate hike — after Federal Reserve Chairman Jerome Powell said last month that a half-point hike “will be on the table” – so the stock market shouldn’t be shocked by Wednesday afternoon’s policy announcement. The devil will be in the details and in the guidance from the Fed’s policy-making committee, as well as its plans for its enormous balance sheet.

“I expect the Fed to signal another half-percentage-point hike is likely at their next decision in June, and that additional hikes — probably no specifics on the number or magnitude — are coming in the second half of the year,” said Bill Adams, chief economist at Comerica Bank.

“The Fed wants short-term interest rates to get back to a level that is at least neutral – meaning neither adding or subtracting to growth – as fast as possible without causing turmoil in financial markets,” Adams added.

Yet it is hard to tell exactly where this neutral level is. It might be around 2.5% or below, according to Adams.

The central bank’s decision will be published at 2 pm ET, followed by the first in-person press conference with Chairman Powell since the pandemic began.