Wednesday is all about the Federal Reserve.
At 2:00 p.m. ET, the U.S. central bank will release its latest monetary policy decision. Markets expect the Fed to raise the target range for its benchmark Federal Funds rate by 0.25% to 1.5%-1.75%. This would be the highest benchmark rate since the financial crisis and be the highest Fed Funds rate since September 2008.
Elsewhere on the economic calendar, investors will get data on existing home sales and mortgage applications out in the morning.
Wednesday will be the beginning of a new story for the Federal Reserve.
The meeting will mark new Chair Jerome Powell’s first meeting, and also the first time Powell faces questions from the media as head of the central bank.
Powell’s tone and general delivery will be closely watched as he showed signs of being a very different communicator from his predecessor Janet Yellen, who was an economist by training and often frustrated market observers in her public communications.
But Wednesday’s meeting also comes at a time when the economy appears to be inflecting into a new gear as the benefits of tax reform kick in for both consumers and businesses, while inflation pressures continue to build.
In a note to clients ahead of the meeting, economists at Goldman Sachs led by Jan Hatzius described this is a “from headwinds to tailwinds” phenomenon whereby dynamics in the economy that had previously held back growth would now support faster growth. Namely, looser fiscal policy as a result of the tax cuts passed by the Trump administration last year.
And while Fed officials are often reticent to opine on fiscal policy — seeing that as the domain of lawmakers while they independently judge the appropriate stance of monetary policy — Powell may be more willing to discuss how moves from the Trump administration like tax cuts or tariffs could impact the economic outlook from the Fed.
In other words, Powell may directly address the “headwinds to tailwinds” dynamic Goldman sees as defining this moment for the economy and perhaps discuss which developments might negatively impact this trend.
On Wednesday, the Fed will also release its latest outlook for the unemployment rate, GDP growth, inflation, and a dot plot giving its estimate for how many rate hikes are likely warranted in the year ahead and beyond.
Goldman expects the Fed to upgrade its outlook for GDP growth in 2018, 2019, and the longer-run.
And overall, the firm sees this meeting’s tone as more hawkish, or suggesting that faster interest rate increases could be coming in the years ahead.
“Public remarks by Fed officials suggest a broad shift in the committee’s outlook towards a potentially faster pace of tightening, and we expect the median dot to show four hikes in 2018, up from three at the December meeting,” Hatzius writes.
“Additional hawkish changes—a move to three hikes in 2019 or an increase in the longer-run funds rate estimates—are also possible but not our base case.”
You can read our full preview of the Fed meeting here, and be sure to click on to Yahoo Finance at 2:00 p.m. ET on Wednesday for full coverage of the Fed’s announcement and all the market action that follows.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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