The Federal Reserve
is likely to announce a hike in key interest rates at the end of its two-day
Federal Open Market Committee (FMOC) meeting on September 21. The FOMC is a
body within the Fed that decides monetary policy, including interest rates.
Markets have already predicted at least another 75 basis points (bps) increase
in interest rate. However, a massive 100 bps or full percentage point hike is
also not off the table.

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The press conference is scheduled to begin at 2:30 pm Eastern time on Wednesday, September 21, 2022.

Fed chair Jerome
Powell’s speech will be streamed live on YouTube.

Hotter-than-expected
consumer-inflation data for August boosted expectations for just how hawkish
the Fed needs to be to control price pressures. The CPI for August 2022 was at
8.3%, which is close to historical highs and far from the Fed’s 25 inflation
target. Inflation has been a critical economic concern throughout the year, and
the Fed has responded by unprecedented tightening from the accommodative
monetary policies set at the beginning of the Covid-19 pandemic.

Also Read | How Paul Volcker tamed inflation with two recessions in 1980s

The FOMC raised
federal fund rates by 25 bps in March, followed by 50 bps in May and a 75 bps
hike in the June and July meetings each, taking the current policy rate to
2.25-2.5%.

According to August
inflation data, energy prices have increased 23.8% year-on-year (including
68.8% for oil) compared with 11.4% for food and 6.3% for other items. However,
energy prices have actually reduced in the last two months, they are down 9.6%
overall and down 16.9% for fuel oil specifically. Falling gas prices are a food
sign, but they are still much higher than a year ago.

Also Read | Where to invest during high inflation?

However, the labor
market seems to be improving, with the unemployment rate at 3.7% and employers
continuously adding jobs month-on-month. There are more than 11 million jobs
available, 4 million more than in the pre-pandemic period. This is also one of
the reasons why the Fed looks comfortable with raising rates.

Also Read | How post-pandemic markets have behaved historically

The Fed meeting is
also expected to have an economic forecast and a summary of economic
projections by the Federal Reserve. “The rate at which tightening cycle is
being followed and its impact on a global scale, as well as the uncertainties,
with effects of tighter financial conditions and aggregate demand, creating
further risk associated with rate hikes. High inflation and interest rates
affect the entire economy. Expectations of a rate hike are highly anticipated,”
said Tanvi Kanchan, Head of Corporate Strategy, Anand Rathi Shares and Stock
Brokers.