Anxious investors, market volatility ahead of Federal Reserve's policy announcement

Financial Markets Wall Street
Posted at 8:21 AM, Jan 26, 2022
and last updated 2022-01-26 09:21:00-05

Wild volatility in the stock market this week has put heightened scrutiny on the Federal Reserve's meeting Wednesday and whether the Fed will clarify just how fast it plans to tighten credit and potentially slow the economy.

With high inflation squeezing consumers and businesses, the Fed is expected to signal that it will raise its benchmark short-term interest rate in March in a sharp reversal from the ultra-low rate policies it imposed after the pandemic recession erupted two years ago. To further tighten credit, the Fed plans to end its monthly bond purchases in May.

Later this year, the Federal Reserve may start reducing its huge stockpile of Treasury and mortgage bonds.

Earlier this month, as the Associated Press reported, notes from a December Fed meeting showed that the central bank had considered reducing its bond holdings by not replacing bonds that mature, which is seen as a more aggressive step in comparison to simply ending purchases. Experts say the Federal Reserve could start reducing its holdings by July.

The stock market appeared to rebound on Wednesday as investors were seen buying a dip hours before the highly anticipated mid-week Federal Reserve announcement, Barron's reported.

Kent Engelke of Capitol Securities Management told the magazine, “Will there be any surprises in the outcome of the Fed meeting? I think at this juncture perhaps all but the worst-case scenario has been discounted.”