The Federal Reserve concludes its two-day meeting on Wednesday.
A rate hike isn’t expected, but it’s almost a foregone conclusion that the Fed will announce a plan to unwind its monthly bond buys of $120 billion/month.
- It was a program started to support the economy during the pandemic.
- Most observers believe the Fed will start reducing purchases in increments of $15 billion each month.
While the Fed will probably stress that the end of bond buys won’t immediately translate into a higher fed funds rate, investors will look for rate-hike guidance from Fed Chief Powell.
Much will probably depend on the Fed’s stance on inflation. It has warmed to the idea that pricing pressures will probably continue into 2022, a shift from early in the year.
The Fed’s own projections suggest one quarter-percentage point rate hike next year to 0.25–0.50%. The CME Group suggests investors are now pricing in at least two rate increases in 2022 amid worries about inflation.
Historically, rate hikes in response to economic growth haven’t stopped bull markets as we saw in a series of rate increases during the 2010s.
A more persistent rise in inflation, however, could create complications.
Investors with a long-term focus and a financial plan that puts them on the path toward their financial goals have historically better-weathered market turbulence. If you have a holistic plan in place, we applaud you. You have chosen the narrow path.