What to Expect from the FOMC – 16th March 2022

The Federal Reserve this week faces the monumental challenge of starting to undo its massive economic help at a time when conditions are far from ideal.

In the midst of a geopolitical crisis in Ukraine, an economy that is off to a slow start and a stock market in a state of tumult, the Fed is widely expected to start raising interest rates following the conclusion Wednesday of its two-day meeting.

High inflation makes it a near certainty that the central bank will move to “tighten” its policies of printing money, by raising the target federal funds rate (the benchmark for short-term interest rates) by 0.25%.

The uncertainty for Fed policy lies in how aggressive the central bank will move after the first interest rate increase. Concerns are building that the Fed may not be able to credibly bring inflation back down to its 2% level. Prices rose by 7.9% on a year-over-year basis in February, a 40-year high.

Complicating the picture on inflation is the Russian invasion of Ukraine, which could lead to higher prices due to the isolation of Russian gas and oil through international sanctions.

Higher energy prices — which are also bleeding into other corners of commodities markets — may make it more difficult for the Fed to pull off its massive effort to slow inflation.

On the other hand, the economic implications of hard sanctions make the default of the Russian economy a viable outcome. It is unclear if a Russian financial collapse would spill over to the United States, giving Fed officials reason to monitor the situation closely.

Be ready tonight at 20.00 GMT+2 for developments from the FOMC!

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