Frankfurt On Wednesday evening at 8 p.m., the US Federal Reserve will decide on its future monetary policy. Half an hour later, Fed Chairman Jerome Powell will explain the decisions to the press. From an investor’s point of view, three questions are crucial: How quickly will the Fed end its program of boosting the economy through bond purchases? What statements does Fed Chairman Jerome Powell make that can be used to draw conclusions about how to proceed? And what do the forecasts of the Fed’s monetary leaders say? With these forecasts, also known as “dots”, investors look, for example, at how many interest rate hikes are emerging as the median of the individual statements that are made anonymously.
The following applies to the markets: If the decision, Powell’s words and the dots result in a harder line than expected, things can get uncomfortable. If the line remains surprisingly soft, the stock exchanges will at least breathe a sigh of relief or cheer.
Three scenarios to choose from
Citigroup’s three scenarios can serve as a typical example of market expectations.
The tough scenario would be: a reduction in net bond purchases by $ 30 billion instead of the $ 15 billion since November, three rate hikes in 2022 according to the Dots or at least ten by 2024 and a hint from Powell that, depending on the data, there will be one in March Rate hike could come.
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So the middle scenario, which would leave the markets cold, would be: 30 billion cut, two rate hikes, and no indication from Powell that there will be no rate hike before June.
And the soft scenario: less reduction, for example by 22.5 billion dollars per month, two rate hikes in the dots and the clear indication that no rate hike is to be expected in March.
The professionals will be lurking for these points – with their fingers on the keyboard.
More: This is what happens at the central banks this week.