Fed: 3 things the market is watching ahead of rate decision

Yahoo Finance Live anchors discuss what to expect from the Fed this week as it looks to raise interest rates.

Video transcript


BRIAN SOZZI: But right now, Wall Street is set to face one of its busiest weeks of the year with more earnings on deck and the Federal Reserve's first meeting and rate decision of 2023 on tap. Fed officials are likely to raise interest rates by 25 basis points on Wednesday with Chair Jay Powell set to offer signs on the central banks path forward.

And this is a market that has enjoyed a good January, guys. I think under this notion, we get that Fed pivot. Perhaps in the back half of this year, we're not getting any more of these rate hikes. But I'm starting to see some of that pushback on Wall Street here. Looking at Evercore ISI's Krishna Guha is saying, you still have to be on high alert for a hawkish Jay Powell.

BRAD SMITH: Yeah, and one thing as we've continued to talk about the Fed and the broader central bank activity around the world, perhaps it was just me trying to start off my week on a different note, I overindexed on the ECB and what they're doing. And the sites are really gonna be set on not this meeting, necessarily, as this one is kind of telegraphed. But even further out into the year, you start to think about what the likelihood of a deeper recession may look like in Europe and what the ECB would be tracking towards.

And September seems to be the timeline that much of the modeling is really looking, at this point in time. And at that September 2023 meeting where they might start to, at least, pause some of the pathway in their own rate hiking strategy, as well.

JULIE HYMAN: Yeah, and I guess the question-- whether it's for the ECB or for the Federal Reserve-- is, one, that "The Wall Street Journal's" Nick Timiraos explored in a story out today where he talked about the lag of policy effect. And it has been sort of conventional wisdom that is was a long and variable lag. In other words, the Federal Reserve raises interest rates and it takes a while to feed through to the economy.

But as he outlines, there's now a debate over whether that is still the case. For a number of different reasons, among them the fact that the Fed is now much more transparent, and communicative, and tells us what they're going to do before they actually do it. So does that then collapse that lag that we had seen traditionally?

So if the lag is shorter, what does that mean for policy? So there's just a lot of academic discussion that has real-world implications around all of this stuff right now.

BRIAN SOZZI: Yeah, and I love that chart from our friend Torsten Slok, Chief Economist over at Apollo. Of course, Apollo is the parent company of Yahoo. But he's noting the average gain, after the Fed funds rate peaks, 15% for stocks. And I think that's what you're seeing, I think the market, at least in January, trying to get out in front of.