How many rate hikes are on tap? Wall Street hopes to connect the Fed’s dots.
If the Federal Reserve raises interest rates this week in an effort to rein in inflation, investors will scrutinize its communications for clues about the likely path of future hikes. Market participants hope to "connect the Fed's dots" — using the central bank's projections and guidance to estimate how much further borrowing costs may rise.
Why It Matters
Expectations about the Fed's next moves shape asset prices and borrowing costs, so clearer signals from the central bank help investors price risk and plan strategy. Wall Street is seeking those signals now to determine whether additional rate increases are likely.
Key Facts
- Timing: This week
- Possible action: Federal Reserve may raise interest rates
- Stated objective: To try to tame inflation
- Investor response: Wall Street hopes to "connect the Fed's dots" to figure out how much more the central bank will raise borrowing costs
Policymakers at the Federal Reserve are expected to decide this week whether to raise interest rates as part of efforts to bring inflation under control. If officials opt to increase the policy rate, investors will be looking beyond the immediate move to infer how many additional hikes could follow.
Market participants aim to "connect the Fed's dots" by parsing the central bank's public guidance and projections. That shorthand reflects investors' search for clarity about the Fed's outlook: how aggressive policymakers intend to be and how long restrictive policy may remain in place.
Those in financial markets will use the Fed's statement, projections and comments from officials to update expectations and reprice assets and borrowing costs accordingly. Clear signals that more tightening is likely would prompt markets to incorporate higher rates forward; indications that the pace of hikes is slowing would likely lead to more dovish pricing.
Traders, portfolio managers and other market observers will therefore watch the Fed closely this week, seeking the information they need to adjust positions and assess the outlook for interest rates and inflation.
Keep Reading
Traditional bond investors have lost money for years. These five-star portfolio managers show a better way.
Pet insurance or savings account: What’s the best way to plan for a big vet bill?
Why one Wall Street firm thinks this year’s stock-market rally is running out of road
