Investing.com | Stocks slide, yields soar on significant hawkish tilt to Fed’s updated dot plot
“Wednesday’s FOMC meeting is arguably the most important one in recent memory, since investors will now have to get used to the new Fed Chair’s communication style, which is an adjustment period for markets. We do not expect any change to interest rates at Wednesday’s meeting, as Warsh is likely going to take his time and monitor how inflation responds to the recent drop in oil prices,” James Demmert, chief investment officer at Main Street Research, said.
Oil has indeed slumped this week due to positive signals around a final U.S.-Iran peace deal, giving the Fed some breathing room and potentially making Warsh’s job easier in terms of defending the central bank’s expected decision to hold rates steady.
“While the drop in oil prices helps to ease inflation, it can also spur more economic activity, which could warrant higher interest rates in the future. We would not be surprised to see Warsh mention accelerating economic growth and the potential for higher rates going forward, even with the political pressure he is facing to cut rates,” Demmert noted.
“Any stock market volatility caused by Warsh’s commentary Wednesday is a buying opportunity in our view since the market fundamentals remain in place,” he said.
“The appearance of a deal to re-open the Strait of Hormuz comes at the perfect time for Chair Warsh since he has been facing pressure to raise rates in light of rising inflation, and at the same time, immense pressure to lower rates by the administration. The drop in oil prices and bond yields in recent days gives Warsh the cover he needs to justify keeping rates unchanged,” Demmert added.
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