The US central bank is expected to raise its federal funds rate target on Wednesday for the first time since the pandemic began. Analysts and economists are too focused on this key event as the Russian-Ukrainian conflict continues in Europe. If the Federal Reserve decides to raise rates by a quarter of a percentage point from zero, investors are wondering how stock markets, cryptocurrency prices and investments like precious metals will react to the news.
Up 25 basis points expected as next Fed steps worries
Last week, the world watched as financial sanctions were imposed on Russia and the price of gold soared to an all-time high of $2,060 an ounce. Shares of energy, oil and a host of commodities have also risen significantly in the past seven days. Cryptocurrency markets were lackluster last week, with volumes declining and activity flat after a brief price spike on March 9, 2022.
On the other hand, equities were hit hard, with indices like the NYSE, Dow Jones, S&P 500 and Nasdaq closing the day in the red on Friday afternoon (EST). To make matters worse, data from the Labor Department’s Consumer Price Index (CPI) report shows that consumer prices hit a 40-year high of 7.9% in February.
The key event this week for all of the aforementioned markets will take place on Wednesday. That is when the US Federal Reserve is expected to raise the base bank rate for the first time since the Covid-19 pandemic. The hike is expected to be only a quarter of a point, but investors will also be wondering if the Fed will announce a series of rate hikes before the end of the year.
During a panel discussion on March 11, Oxbow Advisors Managing Partner Ted Oakley said he expects a 25 basis point increase this Wednesday.
“I want to see what we can see happen to the Fed. Obviously next week we expect a 25 basis point increase there,” Oakley said. “There’s a lot of concern that we’ve seen the markets still don’t seem to have settled on what the Fed might do next. How do you plan it? How do you position your portfolio if you’re not entirely sure how aggressive the Fed will be?”
Fed Watch forecasts 25 basis points up, report shows futures markets forecast ‘aggressive’ streak of rate hikes
The CME Fed Watch Tool also expects the US central bank to raise rates by 0.25 percentage points. A Bloomberg report on Sunday released further details that the Fed could become more “aggressive” after the first rate hike.
“Futures markets are showing a tightening of about 165 basis points this year, equivalent to an increase of at least six-quarters of a point,” Bloomberg’s Craig Torres and Olivia Rockman explain. At a House Financial Services Committee meeting on Tuesday, Mark Zandi, chief economist at Moody’s Analytics, said he thought rate normalization was a good idea. At the meeting, Zandi stated:
I think it’s important to normalize interest rates to ensure that the economy continues to grow and avoid a recession.
Crypto Markets Remain Shineless, Gold Loses 3.49%, Monetary Easing Tactic Ends
On Sunday afternoon, the price of one ounce of gold is below the high of $2,060 that was recorded last week. An ounce of gold is currently exchanged for $1,980 per ounce of 0.999 fine gold. At the time of writing, the capitalization of the global crypto market is hovering around $1.78 trillion, down 2.6% over the past 24 hours.
Cryptocurrency markets remain bleak, with only a handful of tokens making single-digit gains on Sunday. Digital currency advocates will be watching the Fed’s move on Wednesday to see if it negatively impacts crypto markets. As far as most reports are concerned, it is unlikely that the central bank will not raise its target federal funds rate this month.
As with the futures markets and the CME Fed Watch Tool, most analysts and economists agree that the monetary easing tactics of Fed Chairman Jerome Powell and the US central bank are coming to an end.
“[Jerome] Powell cannot afford to be dovish at the moment, that would be inconsistent with what sound policy is and where it should be headed,” Derek Tang, an economist at Monetary Policy Analytics in Washington, said Sunday.
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Jamie Redman
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