The FOMC Meets Tuesday: What Investors Should Know

As investors anxiously await the next FOMC meeting on June 14, they will be expecting another interest rate hike in an attempt to slow down inflation.

Fed board members such as Loretta Mester and Lael Brainard are expecting another 50 bps increase in the both the June and July meetings, unless inflation begins to decline. However, inflation has been persistent, and Fed officials have been in strong agreement on raising the interest rate by 50 bps in June.

St. Louis Federal Reserve Bank President James Bullard has signaled that a 2% funds rate would be considered neutral in light of the current economic situation. With persisting inflation, “the funds rate target range is expected to be between 1.75% and 2% by the end of July,” according to the Wall Street Journal.

Also Read: Stock Bloodbath Continues, Pushing S&P 500 Into Bear Market Ahead Of Critical Fed Meeting

As reported in the May minutes, the fed funds rate target range was raised to .75% - 1%, with an additional .50% increase approved for the June FOMC meeting. If inflation experiences a steady decline leading into September, Fed members have indicated they will consider slowing down interest rate hikes.

Essentially, it appears the Fed will not make an emergency decision in hiking interest rates before their next meeting, as it could be seen as a sign of weakness. Additionally, as of June 1, the Fed began the reduction of its balance sheet, eventually allowing $95 billion per month of treasury and mortgage-backed securities to runoff.

According to CNBC, “central bankers wanted to be clear that the reduction, or tapering, of assets was not a precursor to an imminent rate hike.”

As inflation rose 8.6% YoY in May and core inflation saw an increase of 0.6%, the majority of Fed board members are insinuating aggressive interest rate hikes until price increases decelerate.

With murmurs of stagflation and recession, the next Fed meeting will deliver investors more insight on the economic situation.

Photo: Courtesy of Rafael Saldaña on Flickr