This week’s Federal Open Market Committee meeting will almost certainly deliver the long-anticipated liftoff from zero interest rates. Wednesday’s rate hike will occur almost exactly two years to the day after the Federal Reserve (Fed) cut rates to zero, as the coronavirus outbreak put nearly an immediate stop to economic activity in the United States and across the globe.
The bond market has already moved well ahead of the Fed to begin tightening credit conditions since Chair Jerome Powell first acknowledged the Fed underestimated the risk of high inflation in late November. The path forward for the Fed is made more challenging by the Russian invasion of Ukraine and new COVID-19 lockdowns in China, which complicate the near-term outlook for both growth and inflation.
This week’s economic calendar is highlighted by Tuesday’s Producer Price Index report, providing Fed policymakers with another perspective on inflation. Thursday’s housing starts report and Friday’s existing-home sales numbers will shed light on whether higher interest rates are beginning to dent the red-hot housing market.
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