Will Powell shake the market without raising interest rates?

He wrote that the past six weeks have raised many questions for investors about monetary policy and financial markets in the United States Market monitoring.

Although the Federal Reserve (Fed) will likely announce today that it will leave interest rates unchanged, Chairman Jerome Powell can still move markets by providing insight into the Fed’s considerations and expectations.

Steve Sosnick, chief strategist at Interactive Brokers, said in an interview with MarketWatch that a relatively low volatility index (VIX) indicates a positive but slow market. It is precisely in such circumstances that it is sensitive to negative impulses.

Recent developments

Since last month, more and more data has emerged showing that the US economy is beginning to respond to pressures from the fastest interest rate hikes since the 1980s.

There are also signs that the overheated labor market in the United States is beginning to cool. Fewer than 200,000 jobs were created in August, and the unemployment rate ended high at 3.8%.

However, inflation that month was 0.6%, the largest increase in 14 months. Other noteworthy factors include recent strikes targeting the largest US automakers, the resumption of student loan repayments and the risk of a US government shutdown.

All of these developments could impact GDP growth in the fourth quarter, according to Gregory Daco, chief economist at EY.

What can investors look forward to at the Fed meeting?

Investors expect the Federal Reserve to start cutting interest rates from the middle of next year. Anything that might indicate that this will not be the case will put pressure on stock prices, according to analysts.

In addition, by easing expectations, the Fed can raise government bond yields and strengthen the US dollar’s position.

Press Conference

Liz Ann Saunders, chief strategist at Schwab, said new indicators of interest rate changes are likely to emerge during press question time (shortly after the meeting).

According to her, these questions and answers usually have a greater impact on the financial markets than Powell’s statement. “It is particularly important what Powell will say about how long interest rates will remain high and about interest rate cuts in 2024, and how he will deal with proposals in this direction,” Saunders said.

If Powell is asked whether these issues influence interest rate decisions, or if he is asked directly about the accuracy of investors’ expectations about interest rate cuts, it could spark strong reactions in the stock market, as happened before last summer.

Today, interest rates are expected to remain unchanged, but the market is divided on how things will play out this year.