High Anticipation for Fed’s Meeting with Little Changes Expected

Markets are awaiting the outcomes of the upcoming Federal Reserve meeting, with the policy update coming with additional importance as it follows the recent surge in consumer prices.

Investors will closely examine the monetary policy statement and its view on the inflation rate, which recorded 5% in May, as shown by recent data.

The two-day Federal Open Market Committee (FOMC) meeting begins Tuesday and concludes on Wednesday.

The U.S. central bank will then issue its rate decision, updated policy statement, and projections for the economy.

The Fed is expected to maintain its current policy and interest rates unchanged, at a historically low level near 0%.

On Monday, the two-year Treasury note yield rose to its highest level since May 13, with fixed-income instruments gaining some momentum ahead of the Fed’s decision, with expectations for rising interest rates being minimal.

Despite calls for tapering and raising interest rates, it is likely that the Federal Reserve Chairman Jerome Powell will reiterate the view that the current surge in inflation is transitory, but it will be intriguing to see to what extent is the Fed sticking to this narrative given the recent data exceeding expectations.

Last month, the inflation rate registered 5%, hitting its highest level in 13 years.

Markets also await if the Fed will give any signals about addressing the rapid build-up in excess liquidity.

However, with the recent decision to pause the buying of corporate bonds, the Fed will need to provide more signals about the future of the current massive asset purchases at $120 billion a month.

Recently, some Fed officials have expressed the need to start considering having a discussion between the FOMC members about reducing the asset purchases, which is the move that will likely precede any interest rate hikes.

It is expected that the Fed could begin such discussions in the coming meetings, so it will be intriguing to see if this week’s meeting will see a real beginning of such talks between the Fed’s board members, with the meeting minutes, expected in July, revealing more about the views within the FOMC about the future of the Fed’s policy.

More is also expected from the Fed on its view of the current job market and its assessment of when it expects substantial further progress towards the full employment and price stability targets.