The DOW Jones, NASDAQ, and S&P 500 - the main US equity indices - slid on Friday with certain headwinds driving the greenback up and the US stock market down. Firstly, this was geopolitics. As we know, investors turn to safe haven in situations of potential military conflict or tensions between countries. Since stocks are risk assets, they are now declining. Secondly, these were the Fed's actions and the possibility of at least 4 rate hikes this year. These were the forces affecting stock prices on Friday. It became known the following day that the US central bank would hold a closed board meeting on Monday, February 14. Speculation is now mounting that the regulator could raise the interest rate during the course of the meeting. The announcement of the anticipated closed meeting was made on the Fed's official website. So, by the end of Monday, the interest rate could already be increased. The matters to be considered by the Board of Governors will be the review and determination of the advance and discount rates. Nevertheless, there are reasons to believe that the closed meeting is announced not only on this occasion. Emergency meetings are actually very rarely held. Last time, such a meeting took place when the Fed was cutting rates at the beginning of the pandemic.
So, the regulator might not wait for the March meeting to announce the rate hike. Indeed, the closed meeting is unlikely to be held without discussing the key instrument of monetary policy because inflation in the US is accelerating and might get out of control. Although many Fed members hoped for a slowdown in inflation by late 2021 or early 2022, nothing of the sort happened. ECB President Christine Lagarde seems to be the only one who still believes in such a likelihood. In the meantime, consumer inflation keeps rising at a faster-than-forecast pace. Therefore, by the time of the next FOMC meeting on March 15-16, annual inflation could already be at an 8% rate. Anyway, no matter the outcome of the closed meeting, there will be some new information regarding the future of monetary policy. The event could cause turbulence in the forex and equity markets. So, traders should be prepared for considerable fluctuations in the first two days of the week.
