Jerome Powell in the Spotlight as Fed Expected to Raise Interest Rates Again

 What the central bank chairman says will be as important as what the Fed does.

The Federal Reserve meets Wednesday with one overriding objective: to convince Americans and the markets that its aggressive interest rate policy will work to tame inflation.

That the Fed will raise interest rates, most likely by 75 basis points, is not in question. What remains to be seen is how the central bank sees the economy going forward and whether its statements will offer any guidance as to how much and for long it will continue raising rates.

The Fed will update its “dot plot” of where officials think interest rates will be over the next several months.

“We expect this rate hike to be a 75-basis point rate increase, following two prior hikes at the same rate,” CUNA Group Chief Economist Steve Rick wrote on Tuesday. “These large hikes are expected to continue through the end of the year. We could see rates rise to above 4% by the end of the year, which would make the rate the highest level it has been since 2007.”

Economic data continues to show an economy that has a strong labor market, stubbornly persistent inflation and some growth. At the same time, sectors such as housing and retail are feeling the effects of higher interest rates and a slowing economy.

“Expect a broad-based uptick in unemployment projections for next year as the Fed further explains what it means by necessary ‘pain’ for the economy,” Jeffrey Roach, chief economist for LPL Financial, said on Tuesday.

Uncertainty over the Fed’s approach, despite Chairman Jerome Powell’s “simple and direct” comments last month at the bank’s summer gathering in Jackson Hole, Wyoming, has roiled markets in recent weeks. The Dow Jones Industrial Average fell more than 300 points, but Dow futures were modestly positive early Wednesday.

The bond market, meanwhile, has pushed yields higher, with both the two-year and 10-year Treasuries hitting highs not seen in a decade.

Complicating the picture for the Fed is the geopolitical situation. Russian President Vladimir Putin said Tuesday he would mobilize more troops while also delivering vague threats to the West about the use of nuclear weapons. Global instability has driven the dollar to 20-year highs, making other economies more fragile as they have to pay more for dollar-denominated items.

The price of a barrel of oil rose more than 2% early Wednesday, but at $86 it is still considerably above the $125 a barrel it traded at after the Russian invasion of Ukraine in late February.

But at 2:30 this afternoon, the focus will be on Powell as he takes questions from the press following the conclusion of the gathering of the Fed’s monetary policy committee. In the past, Powell’s comments have sometimes rattled markets although he has been quite adamant about the Fed’s need to do whatever it takes to arrest inflation, now running at an 8.3% annual rate.

“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said in Jackson Hole late last month. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”