Fed’s announcement in June: The talk of the town today — and for the foreseeable future, unfortunately — will be the Fed’s steps to curb inflation. With stocks selling off like crazy in the last week and hitting levels not seen since early 2021, it has many investors wondering how reactive the Fed will be to the recent price action. To help grapple with it all, we posed this question to several industry experts:

WHAT CAN WE EXPECT FROM THE FED?

“The stock market is under downward pressure as it prices in the risk of a recession and uncertainty over the number of rate hikes needed to cool our red hot inflationary environment. As a Mom, I know firsthand that the supply chain shocks exacerbating things like baby formula are creating extremely negative consumer sentiment. Indeed, as we saw last Friday, consumer sentiment came at a record low, driven by inflation. Powell is now savvy with the press (after an initial bumpy start) and likes to soothe the stock market. While he was late to begin acting on inflation, I believe he will be reassuring in his comments and look to calm our current fear-based environment.” — Elle Kaplan, CEO of LexION Capital

“I don’t think that the last two days change anything action-wise in what the Fed does at this meeting. However, I do think it may change their wording to be open to more tightening in a faster fashion if needed. I think the most interesting part of their comments will be how they think the recent market action affects employment.  As we have seen over the last few weeks, there has been a small weakness in employment. But does that continue to spread, and if it does, how can they help to steady it?  The two areas of the economy that have yet to be hit and both seem very vulnerable right now are employment and housing.” — JJ Kinahan, Chief Market Strategist and VP at tastytrade

“I’m still anticipating a 50 basis-point increase, especially given Monday’s sell-off, but I do think the stage is set for larger and faster rate hikes in the near future. I think we could also see a more aggressive tone in Wednesday’s comments, after the May report was less-hawkish sounding than investors were expecting.” — Christine Short, VP of Research at Wall Street Horizon

“There is no question that the Fed will increase the target Fed funds rate by a minimum of 50 basis points to send a strong message that it is serious about fighting inflation. The problem is that if that message is too strong, the cure could be worse than the malady. Specifically, the Fed has a dual mandate to seek 1) full employment and 2) stable prices. The unprecedented quantitative easing was in response to the Coronavirus pandemic and was targeted at helping keep the economy moving forward. It worked!

Now, the Fed has pivoted to the second goal in its mandate — stable prices — and if it acts too swiftly, that could cause problems in the underlying economy and we could see a decrease in employment levels. In essence, the Fed is trying to thread the economic needle and achieve a soft landing. Pundits who say that the Fed should act boldly and enact a 100-basis point increase immediately are simply focused on the stable prices goal and dismiss the full employment goal. — Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance at Creighton University

“While a future 75- or 100-basis-point is possible, the FOMC appears to prefer adding more 50 basis-point hikes to tighten more aggressively instead. Given the hawkish shift in market pricing over the last couple of days, a 50 basis-point hike may be taken quite dovishly. To offset that, I expect the FOMC to respond with a strong hawkish message through its statement, economic projections, dot plot, and press conference. Specifically, I think they’ll revise the policy guidance in its statement to say that the Committee “anticipates that raising the target range expeditiously will be appropriate until it sees clear and convincing evidence that inflation is moderating”.

The GDP growth projections are likely to be a touch below the longer-run or potential growth estimate in 2022 and 2023, implying an intention to restrain demand growth so that supply has time to catch up. The June meeting will also bring large changes to the dot plot, with 50 basis points through the end of 2022. — Harry Turner, Founder of The Sovereign Investor

“As a technical analyst, our focus is more on the market’s lead-up and reaction, more than what the FOMC does or does not do. Judging from the past three  days, markets appear set to decline into the statement, which could very well set up the “sell on the rumor, buy on the news” outcome.” — Christian Tharp, CMT, at The Chartist Academy

Analysts’ attention will be drawn to the trend in yields — which have seen remarkable fluctuation — and leading indicators to assess the efficiency of the implemented policy. As such, the Leading Economic Indicator (LEI) will be another indicator to be closely watched.  — Toni Nasr, CFA, FRM, Fintech Analyst at Investing in the Web.