Fed about to do something it hasn't done in two decades

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Wednesday, May 4, 2022

In the face of rising inflation, the Federal Reserve seems poised to do something it hasn’t done in two decades: implement a massive increase in interest rates.

Rewind to May 2000 when things were very different (i.e. Razor Scooters were catching on and *NSYNC was Addition the Billboard charts). But just like today, concerns were mounting about higher inflation in the future.

Faced with “inflationary imbalances”, the Fed led by Alan Greenspan high interest rates by 0.50% to a target of 6.5%. That would be the last time the Fed would raise interest rates that much in one move, opting instead for hikes of 0.25% at a time.

Fed Chairman Jerome Powell and his colleagues will likely break that spell by the conclusion of today’s meeting. Powell said on April 21 that a huge 0.50% rate hike “will be on the table.”

San Francisco Fed President Mary Daly suggested that more aggressive moves will also be on the table for future meetings.

“We will probably take a 50 basis point increase in a couple of meetings,” he said. told Yahoo Finance on April 21.

Despite the historical significance of a 0.50% move, some have argued that it will take more to win the shootout against the rapid pace of price increases. While measures of inflation (personal consumption expenditures) showed an annual price increase of 2.4% in May 2000, price increases now they have a rate of almost 7%.

St. Louis Fed President James Bullard, for example, has floated the idea of further growth: a 0.75% movement.

The markets are not expecting that gigantic rise at today’s meeting. Fed funds futures, the betting market for the Fed’s moves, were trading at a 99% chance of a 0.50% move as of Tuesday afternoon.

Along with any moves in interest rates, the Fed is also expected to announce a strategy to undo the trillions in asset purchases it has made since the start of the pandemic. Until March, the Fed was absorbing US Treasuries and agency mortgage-backed securities to send a message of support to financial markets.

Preliminary discussions held in March outlined a rough plan to reduce its nearly $9 trillion balance sheet, detailing a strategy of allowing up to $95 billion a month on assets that are due to roll.

The Fed’s decision is due at 2 pm ET. Powell’s news conference, the first in person since the pandemic, will begin at 2:30 p.m. ET.

Today’s newsletter is from Brian Cheung, anchor and reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

what to see today

Economy

7:00 a.m. Eastern Time: MBA mortgage application, week ended April 29 (-8.3% over the previous week)
8:15 a.m. Eastern Time: ADP Change of employment, April (385,000 expected, 455,000 in March)
8:30 a.m. Eastern Time: Balance of trade, March (-86.7 billion dollars expected, -89.2 billion dollars in February)
9:45 a.m. Eastern Time: S&P Global US Services PMI, End of April (54.7 in the previous edition)
9:45 a.m. Eastern Time: S&P Global US Composite PMI, End of April (55.1 in previous printing)
2:00 p.m. Eastern Time: FOMC Monetary Policy Decision

Profits

Premarket

6:30 a.m. Eastern Time: Amerisource Bergen (ABC) expected to report adjusted earnings of $2.93 per share on revenue of $57.28 billion
6:30 a.m. Eastern Time: CVS Health (CVS) expected to report adjusted earnings of $2.15 per share on revenue of $75.39 billion
7:00 a.m. Eastern Time: marriott international (SEA) expected to report adjusted earnings of 92 cents per share on revenue of $4.17 billion
7:00 a.m. Eastern Time: Hmm! Trademarks (Hmm) expected to report adjusted earnings of $1.08 per share on revenue of $1.60 billion
7:30 a.m. Eastern Time: Vulcano Materials Co. (CMV) expected to report adjusted earnings of 62 cents per share on revenue of $1.43 billion
7:30 a.m. Eastern Time: Sinclair Broadcasting Group (SBGI) it is expected to report an adjusted loss of $1.21 per share on earnings of $1.53. billion
7:30 a.m. Eastern Time: wings stop (TO THE) expected to report adjusted earnings of 36 cents per share on revenue of $86.22 million
Before the opening of the market: Modern (mRNA) expected to report adjusted earnings of $4.98 per share on revenue of $4.71 billion

post-market

4:00 p.m. Eastern Time: Stock reservation (BKNG) expected to report adjusted earnings of 71 cents per share on revenue of $2.54 billion
4:05 p.m. ET: go daddy (GDDY) expected to report adjusted earnings of 43 cents per share on revenue of $989.92 million
4:05 p.m. ET: Uber (Uber) expected to report adjusted loss of 18 cents per share on revenue of $6.13 billion
4:05 p.m. ET: twilio (TWO) expected to report adjusted loss of 22 cents per share on revenue of $863.93 million
4:05 p.m. ET: etsyetsy) expected to report adjusted earnings of 72 cents per share on revenue of $575.59 million
4:05 p.m. ET: tripadvisor (RIDE) expected to report adjusted loss of 8 cents per share on revenue of $250.00 million
4:15 p.m. ET: marathon oil (MRO) expected to report adjusted earnings of 97 cents per share on revenue of $1.85 billion
After market close: Spirit Airlines (SAVE) expected to report adjusted loss of $1.57 per share on revenue of $957.50 million