Fed to Balance on a Tightrope: Key Element of FOMC Policy Decision Today?

By Malvika Gurung

Investing.com -- The two-day US Federal Open Market Committee (FOMC) policy meet will end on Wednesday and the central bank will announce its i nterest rate decision at 11:30 pm (Indian Time), followed by Jerome Powell’s press conference half an hour later.

According to the Investing.com Fed Rate Monitor Tool, there is an 85.6% likelihood of a 25 basis point rate hike of 4.75-5%, while investors and economists will remain laser-focused at Powell’s speech for indications on the central bank’s stance in tackling the banking turmoil while balancing inflation.

In a note provided to Investing.com, Vinod Nair, Head of Research, Geojit Financial Services said, “Today’s Fed decision will be crucial in determining the direction of the market. The most likely outcome will be a 25bp hike in rates along with assurances of financial stability.”

The Fed’s rate hike of 25 bps wouldn’t interest the market as much as Powell’s statement on the economic and inflationary outlook and ‘if he can do a good enough job convincing the public of the banking noise’, said Oliver Pursche of Wealthspire Advisors.

All eyes will be set on the Fed’s decision to balance the erratic banking crisis with the fight against inflation.

If the Fed leaves the policy rate unchanged, it could signal the central bank’s under-confidence in the US banking system or the economy’s resilience. On the other hand, a rate hike could manage to spook investors as well as add angst in the banking sector, economists believe.

"The difficult thing for the FOMC at this meeting will be the tension between bringing down inflation and financial stability risks,” said Jonathan Millar of Barclays (LON: BARC ) Plc.

Read Also: Fed Decision, Powell’s Speech Timing; Investing.com Rate Hike Forecasts