Fears of a stock market crash are swirling as the Federal Open Market Committee (FOMC) meeting kicks off today. Indeed, stocks have fallen for two consecutive weeks amid speculation that the central bank may prove the bearer of bad news at this week’s crucial policy meeting.
So, what exactly will the Federal Reserve do this time around?
Well, not cut interest rates. According to the CME FedWatch Tool, the Fed has just a 1% chance of lowering interest rates at this week’s policy meeting. Though this isn’t exactly a new development, given the pace of inflation lately.
Prices came in hotter than projected both in the February Consumer Price Index (CPI) inflation report as well as in last month’s Personal Consumption Expenditure (PCE) report. As such, most of Wall Street has long-expected the central bank to hold rates steady this time around as the battle with inflation proves difficult.
Wall Street is primarily concerned with potential hawkish commentary coming out of this week’s meeting. Indeed, the Fed may hint that rate cuts won’t come as soon as many investors’ have hoped. This could crush hopes of even a June rate cut, which many analysts believe is a strong possibility.
Currently, interest rates are trending between 5.25% and 5.50%, a relatively restrictive level. When rates are high, consumer spending and general economic growth tends to be hampered as the cost of lending rises. This is why Wall Street has been so eager to see rates fall this year — as well as why inflation reports have become make-or-break market events.
What Does the Fed Meeting Mean for a Stock Market Crash in 2024?
Economic data suggests that prices may be straying from the disinflationary path they’ve been on most of the past year.
If you recall, prices climbed at 3.2% year-over-year (YOY), per the February CPI, higher than projections of a 3.1% increase. While this is still well below inflation levels just nine months ago, investors nonetheless responded bearishly to the report.
The central bank will release its monetary policy decision this Wednesday, March 20, along with a speech from Fed Chair Jerome Powell.
At the January policy meeting, Powell took a relatively neutral tone as he warned that members of the central bank want to wait for “more good data” before lowering rates. Though this came after a series of strong inflation readings.
With inflation having changed trajectories slightly, analysts are eager to hear how Powell will frame the Fed’s current feelings on the country’s way forward in the last leg of the war on inflation.
“At this point, I think the bigger mistake would be to move rates down too soon or too quickly without sufficient evidence that inflation is on a sustainable and timely path,” said Loretta Mester, the President of the Cleveland Federal Reserve Bank, in a recent speech.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
