What to expect at the June FOMC meeting?

On Wednesday, June 15, there will be the expected FOMC meeting, and we will learn about the future monetary policy outlook for the United States. This is especially important against skyrocketing inflation and a declining stock market. 📌

It was learned that U.S. consumer prices rose 8.6 percent year-over-year in May, the highest level since December 1981. Therefore, the Federal Reserve needs to develop leverage to manage the crisis and stabilize the stock market, which is ripe with panic among investors.

Earlier this May, the U.S. The Federal Reserve (Fed) raised its interest rate by 50 basis points, from 0.25-0.5 percent to 0.75-1 percent yearly. This was the first time since 2000. In addition, the Federal Reserve reported a reduction in its portfolio of government bonds, government agency debt, and mortgage-backed debt securities beginning June 1.

However, this did not lead to quick results. As predicted, the U.S. Federal Reserve plans to raise interest rates at least twice this year by 50 basis points to stabilize inflation.

But how realistic is that? 🤔

What is FOMC

FOMC Meetings are the minutes of the Federal Open Market Committee meeting that determines U.S. monetary policy. They analyze the decision of the FOMC Meeting Announcement at the meeting, which is usually published two weeks earlier. The meeting results in a detailed report on decisions made on the interest rate and other monetary policy management tools.

In this case, we will learn about the genuine intentions to increase the interest rate again, by at least 50 points, to 1.25-1.75%. However, many experts are already talking about a possible increase of 75 basis points, which will be higher than predicted.

The Fed's benchmark rate is the interest rate at which commercial banks in the U.S. lend to each other for short terms. A rate hike is a factor in lower world prices for oil, gas and metals, and other commodities.

Source: US Federal Reserve

The Fed is also expected to continue to allow $30 billion of Treasury securities and $17.5 billion of agency mortgage-backed securities to mature and roll off the balance sheet, increasing to $60 billion of Treasuries and $35 billion of MBS by September.

Based on this, the interest rate could rise by at least 50 basis points next month, July. After all, the Fed has made it clear that the problem of rising consumer prices is at the center of their attention. Therefore, they are expected to take concrete and tough steps to reduce the negative impact of inflation on U.S. households. 👇🏻

What does it all mean for traders?

The Fed will likely continue raising rates to 2.5-3% by 1Q-2Q 2023. This could slow inflation and balance the stock market.

For traders, this primarily means an era of high dollar indexes near their highs. Keep in mind that this could put pressure on other weaker currencies and major indices like the Dow Jones and SP500, which collapsed on Monday under the news of high inflation.

It also may be a sign that a new bull run (a continuous increase of asset prices like we saw from March 2020 till November 2021) for the equity markets is not expected anytime soon.

Conclusion

We just have to wait for Fed officials to raise interest rates for the third time this year on Wednesday. With a three-quarter percent increase now seen as the likely outcome, the possibility of more significant increases as long as inflation continues well above its 2% target.

The new forecasts may also give their view of what is at risk and what price the economy could pay by slowing growth and rising unemployment to bring inflation back in line.

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