Fears of a stock market crash are swirling ahead of the Federal Reserve’s upcoming Federal Open Market Committee (FOMC) meeting, set for March 19 through March 20. Indeed, economists and analysts have been waiting for the second policy meeting of the year as high interest rates continue to bear down on the economy.
What should you expect this time around?
Well, not a rate cut. Despite the pleas of much of Wall Street, the central bank is expected to hold rates steady next week, as inflation proves more stubborn than expected.
The Consumer Price Index (CPI) and Producer Price Index (PPI) reports — released on March 12 and March 14, respectively — showed hotter-than-expected inflation. That is suggesting the final leg of the war on inflation may prove difficult.
With inflation still above the Fed’s long-stated 2% goal, it’s unlikely for the central bank to move to lower rates, especially with the economy holding strong in most regards.
In fact, the strength in the labor market so far this year has given the Fed even more leeway to hold off on cutting rates for a bit longer without fear of economic repercussion.
The February jobs report, released last week, showed the economy added 275,000 nonfarm payrolls, notably above the forecast for 200,000 jobs. This put unemployment at 3.9%.
What Does the Fed Meeting Mean For a Stock Market Crash?
According to the CME FedWatch Tool, the Fed has just a 1% chance of cutting rates at the March policy meeting. Unfortunately, the tool also only estimates a roughly 8% chance of a rate cut at the following Fed meeting set for May 1.
With the benchmark rate between 5.25% and 5.5%, investors and businesses may have to bear with restrictive interest rates for a while longer. That said, unless there is a notable shift in economic data, you can expect rate cuts to come in June or July. Indeed, the CME Group estimates a more than 50% chance of a rate cut in June and about a 75% chance of a rate cut in July.
High interest rates typically encourage economic contraction in the form of higher unemployment, reduced consumer spending, limited production growth and (perhaps most notably) slowed price growth. As such, Wall Street has been holding out hope for lower interest rates since Fed Chair Jerome Powell hinted at three or more rate cuts to come this year back in December 2023.
In recent weeks, Powell has repeatedly stated that members of the central bank are still waiting for “more good data” to justify lowering rates.
“In considering any adjustments to the target range for the policy rate, we will carefully assess the incoming data, the evolving outlook, and the balance of risks,” Powell told Congress earlier this month. “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
