Has Inflation Come to Spoil the Party? FOMC Preview

With pandemic restrictions starting to ease, investor discussion is turning to what the economy may look like as it emerges from a lockdown of its own. Some economists have called for 7% GDP growth as consumers unleash excess savings or just spend the money provided from the government’s latest $1.9 trillion stimulus package. Insight will be provided at the conclusion of this week’s Federal Open Reserve Committee (FOMC) meeting tomorrow.

For the first time in many months, the Fed will need to be somewhat careful what it says. The market is currently trading near all-time highs on all three major averages but is just 2 weeks removed from a very nasty tech-driven sell-off as the 10-yr rate slowly ticked higher.

Ten-year rates traded around 1.5%, which would be historically low in any other era, but in the era of quantitative easing and abundant stimulus, 1.5% is cause for inflation concerns.

In recent FOMC meetings, Chair Jerome Powell suggested rates would remain at current levels until at least 2023. Investors and economists will watch this meeting closely for insight as to whether this plan has been updated to signal more immediate rate hikes. The Fed will want to ease concerns that inflation may appear uncontrolled or earlier than expected and any suggestion to maintain the status quo will reassure traders.

The Fed will also release their updated economic projections, with the expectation it will echo what the market has already heard: conditions are improving better and faster than expected. This is largely attributed to the recently rapid vaccine rollout however a full economic rebound will not occur until employment levels improve.

The market may be at all-time highs, but there are still millions more unemployed now than prior to the pandemic. Some of this can be attributed to the market’s forward view of the economy, but also to its blinders of certain economic figures when cash is available. The market is less concerned about the unemployed when investors are flush with cash which has not been an issue for 9 months or so.

Finally, after a year of lockdowns, investors can see the light at the end of the Covid tunnel. It will be on the Fed to assure those investors their concerns are temporary and that inflation has not come to ruin their day.

Any changes to current policies will likely disrupt markets and cause volatility, so active traders to prepare for the unexpected. For up-to-date information on contract expirations, roll dates, news announcements and more, visit and bookmark the NinjaTrader Trade Desk Calendar.