- Fed largely expected to raise rates by 0.5%
- Some effects of past rate hikes starting to show
- Powell’s rhetoric will have to thread the needle
The Fed is about to lay all its cards on the table in the final FOMC meeting of the year next week (December 13-14). The Fed’s updated economic projections and dot plot as well as the Chairman’s press conference come at a critical time for the equity market as recent market movements have largely been driven by expectations for how aggressive the Fed still needs to be. In what is arguably the last major economic event of 2022, the financial markets will be monitoring how the Fed balances its focus on inflation (e.g., the increase in the terminal value of the fed funds rate) versus the risk of recession. Recent Fed member speeches appear to be more balanced as they have focused on this two-sided risk of raising interest rates, and investors hope the Fed signals it will turn the tables in 2023 with a rate cut.