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Economic Uncertainties Surround Fed Meeting

At the conclusion of Wednesday’s Federal Open Market Committee (FOMC) press conference with Fed Chair Jerome Powell, economists hope to have more answers than they do questions. At the moment, almost nothing is certain about this meeting other than the Federal funds rate remaining at 0.

Questions remain, such as how long the Federal Reserve will continue buying bonds and at what dollar value they will spend each month.

Economists also seek clarity over when the Fed might look to increase the target range for the Federal funds rate. Finally, questions linger around bond purchasing as it relates to the long run inflation target of 2%.

As market analysts slowly brighten their outlook for spring 2021 due to growing vaccine optimism, they will be looking to the Fed as the foundation of the nation’s economy. With accurate and actionable information, major banks and financial institutions can begin to prepare for the post-Covid world. Currently there are too many questions to make any accurate predictions.

Based on prior meetings, the Fed will offer information about its future plans to reduce market uncertainty – they aim to create stable market conditions and not spook an already fragile market. Traders should expect little initial reaction as the headlines will be about the Federal funds rate remaining unchanged. Slowly as the minutes are read and the press conference begins, more volatility could follow as the market digests the news in real time.

Due to these unprecedented times, rates have never remained this low for this long. Add a pending second round of stimulus and the economy could potentially be flush with cash. The impact on inflation growth remains unknown as economists have posed this question since the government initiated these policies. The last time similar conditions were present, the Fed increased interest rates to slow inflation. As there is more money in the system currently, rates are expected to remain unchanged until 2022 or even 2023.

Several fascinating economic questions surround tomorrow’s Fed meeting, most of which will hopefully be answered after Wednesday’s minutes and press conference. As with any news event, traders should be prepared for the unexpected and have a plan in place to reduce their market exposure.

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