All Eyes Firmly Fixed on the Federal Reserve
Today, at 19:00 GMT, the US Federal Reserve is due to release its latest policy decision, following a two-day meeting where rising inflation will no doubt have been at the top of the agenda.
With US inflation close to a 40-year high, the Fed are widely expected to indicate plans to hike interest rates at their next policy meeting in March, without committing themselves to anything specific.
However, what is expected and what actually happens are not always the same.
Whilst inflation may be the primary concern at present, any decisions by the Fed will need to weigh the current economic risks presented by fears of a Russian invasion of Ukraine as well as the Covid-19 pandemic. Furthermore, the slide in many US equities since the start of the year reflect growing uncertainty regarding economic outlook.
The challenge for the Fed is to take sufficient action to tackle inflation before it becomes entrenched, whilst being careful not to derail the economic recovery in the process.
As mentioned, 2022 has not begun well for US equities, and this week has been particularly volatile on Wall Street, as the market attempts to price in the Fed’s anticipated actions.
The S&P 500, one of the essential benchmark indices for the US stock market, has fallen 8.6% since the turn of the year. The tech-heavy Nasdaq 100 has dropped 13.3% in the same time frame, as tech stocks have found themselves especially vulnerable to the current wave of uncertainty.
However, the beleaguered tech sector will most likely be reassured by Microsoft's strong revenue forecast for the current quarter, released yesterday, which has led to Microsoft shares rising almost 4% in pre-market trading.
On this side of the Atlantic, the day has started well in the stock market, despite mounting concerns in eastern Europe. The major European indices are all up at the time of writing, with the DAX 40, FTSE 100 and the Euro Stoxx 50 up around 2%, 1.7% and 2.1% respectively.
Traders should be wary of increased volatility across the markets in the lead up to the Fed’s announcement later today. Whilst we are unlikely to learn of any concrete plans, a more hawkish tone from the Fed (i.e. their primary concern is reducing inflation) may spark further sell-offs during today’s US session.
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