The Fed sent surprising signals to the market as it showed hawkish signs and a stronger desire to raise interest rates in the near future. As the final meeting winds down, the committee does not plan to raise rates until the June meeting, but it could instead upgrade its view on economic conditions and inflationary risk before June.
Analysts claim, “They will be more hawkish. It’s going to be a pretty bullish, hawkish statement – with a good economy and a warming trend. You had 1.9 percent in core PCE, the highest since January 2017.” The PCE indicator further justifies the “core number” to be a little south of the Fed’s 2 percent target.
As the Fed continues to make its statement, investors should consider upcoming market conditions. As a hawkish opinion rolls through, yields could be higher, equities might spiral downwards, and the U.S. dollar could continue with its upward trend. With the current Eurozone conditions, investors could potentially witness the Euro falling and crude oil prices increasing in comparison to the basket of currencies.
One official claims, “I think you could see a little reaction. If the Fed validates the increased rate expectations we’ve seen that may be enough, with a dollar that is technically breaking out. I think the risks are that markets interpret their commentary in a hawkish manner. I see risks pointing in that direction, as opposed to a dovish direction.”
On a different note, the Treasury market has also been in the spotlight recently with this refunding needs for the third quarter. Analysts are expecting a $1 billion addition to the issuance for 2-year to 7-year notes in each month of the quarter. This is just for the short end, but the longer end 10-year and 30-year issues are in question. With the Fed’s abrupt outlook going forward and the murky treasury market, the stock market is expected to make significant moves in the coming months.