The most important day of the month has come. Today, the US Federal Reserve will announce the outcome of the first 2-day meeting in 2022. The question is whether the regulator will raise the benchmark rate already in January or stick to the plan. Speaking of the plan, it means continuing to reduce monthly asset purchases. Many experts have recently said they expect at least 3 or 4 rate hikes by the Federal Reserve this year. It also became known that President Joseph Biden himself had asked Chairman Powell to raise the interest rate by 0.5% in January. So, any outcome is possible today. If the US central bank announces a rate hike today, this decision may provide support for the greenback and exert pressure on risk assets such as cryptocurrencies and stock indices. Meanwhile, the US equity market is still bearish, in line with our expectations. The question is whether this will be a deep and prolonged fall. After all, the Federal Reserve has not raised the interest rate even once yet or abandoned the quantitative easing program. Moreover, the main US stock indices showed just a modest decline to ring the alarm. However, if these two events are connected, the NASDAQ, Dow Jones, and S&P 500 will continue making losses.
Today, a lot will depend on the Fed press conference. As we know, Jerome Powell said that the current rise in inflation could be referred to as transitory no more. He spoke about it in the US Senate and emphasized that the regulator would do whatever it takes to take growing prices under control. After all, the most vulnerable groups of the population had been hit the hardest of all due to accelerating inflation. Nevertheless, some experts suggested that the Federal Reserve had resorted to action a little too late, and the abandonment of the QE program and a few rate hikes would not be sufficient enough to curb inflation. The regulator has reduced asset purchases by $45 billion a month so far, and consumer prices are still on the rise. Above all else, a new wave of the COVID-19 pandemic is now raging around the world. Therefore, it is unlikely that supply chain issues have been resolved, and this is the primary reason why prices are growing worldwide. So, although the Federal Reserve is planning to tighten its monetary policy this year, it does not mean that inflation will plunge to around 2%.
