A US interest rate and bond-buying update from the Federal Reserve is the standout macroeconomic event this evening and maybe for the next few weeks.
US equity markets have already taken a bashing on growing anticipation that the world’s most influential central bank will accelerate its monetary tightening programme.
With the previously dominant central banker stance that inflation was “transitory” evaporating with each new month’s data, policy expectations rose sharply over the latest week and bond yields moved higher around the world and put pressure on riskier assets including many stocks and cryptocurrencies.
Confirmation will come late on Wednesday with the conclusion of the latest rate-setting meeting of the Federal Open Market Committee (FOMC).
The FOMC has already indicated it will end its bond-buying programme in March, paving the way for three interest rate hikes by the end of 2022.
More recent minutes from the committee, however, suggested the mood is hardening and that was before US inflation climbed to 7% in December, the fastest rate of price rises in 40 years.
“I don’t think anyone seriously expects the Fed to change rates at Wednesday’s meeting. Right now, that’s assumed to start in March,” said market analyst Marshall Gittler at BDSwiss.
“Investors then expect four or possibly five (or more!) hikes total during the year, in contrast to the three that the Committee members predicted just last month.”
Whether or not faster rate rises are seen as warranted by the Fed, expect another big reaction from equity markets either for a further downward adjustment or a relief rally on Thursday.