The Fed is about to do something it has not done in two decades: Morning Brief

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Wednesday, May 4, 2022

In the face of rising inflation, the Federal Reserve looks poised to do something it has not done in two decades: Implement a king-sized bump in interest rates.

Rewind to May 2000, when things were very different (ie Razor Scooters were catching on and *NSYNC was topping the Billboard charts). But much like today, concerns were building about higher inflation down the road.

In the face of “inflationary imbalances,” the Fed led by Alan Greenspan raised interest rates by 0.50% to a target of 6.5%. That would be the last time the Fed would ever raise interest rates by that much in one move, opting instead to 0.25% increases at a time.

Fed Chairman Jerome Powell and his colleagues will likely break that spell at the conclusion of today’s meeting. Powell said April 21 that an outsized rate increase of 0.50% “will be on the table.”

San Francisco Fed President Mary Daly suggested that the more aggressive moves will be on the table for future meetings as well.

“We will likely be taking a 50-basis-point increase in a couple of the meetings,” she told Yahoo Finance April 21.

Despite the historical significance of a 0.50% move, some have argued that more will be needed to win the firefight against the rapid pace of price increases. While measures of inflation (personal consumption expenditures) were showing prices rising annually by 2.4% in May 2000, price increases now are pacing at almost 7%.

St. Louis Fed President James Bullard, for example, has floated the idea of ​​going even bigger: a 0.75% move.

Markets are not expecting that gigantic hike in today’s meeting. Fed funds futures, the betting market for Fed moves, were pricing in a 99% chance of a 0.50% move as of Tuesday afternoon.

Alongside any move on interest rates, the Fed is also expected to announce a strategy in undoing the trillions in asset purchases it made since the beginning of the pandemic. Up until March, the Fed was absorbing US Treasuries and agency mortgage-backed securities to message its support to financial markets.

Preliminary discussions held in March outlined a rough plan to shrink its nearly $9 trillion balance sheet, which detailed a strategy of allowing up to $95 billion a month in maturing assets to roll off.

The Fed decision is due at 2 p.m. ET. Powell’s press conference, the first to be held in person since the pandemic, will begin at 2:30 pm ET.

Today’s newsletter is by Brian Cheung, an anchor and reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz

What to watch today

Economy

  • 7:00 a.m. ET: MBA Mortgage Application, week ended April 29 (-8.3% during prior week)

  • 8:15 a.m. ET: ADP Employment change, April (385,000 expected, 455,000 in March)

  • 8:30 a.m. E.T.: trade balance, March (-$86.7 billion expected, -$89.2 billion in February)

  • 9:45 a.m. ET: S&P Global US Services PMI, April final (54.7 in prior print)

  • 9:45 a.m. ET: S&P Global US Composite PMI, April final (55.1 in prior print)

  • 2:00 pm ET: FOMC monetary policy decision

Earnings

Pre-market

  • 6:30 a.m. ET: AmerisourceBergen (ABC is expected to report adjusted earnings of $2.93 per share on revenue of $57.28 billion

  • 6:30 a.m. ET: CVS Health (CVS is expected to report adjusted earnings of $2.15 per share on revenue of $75.39 billion

  • 7:00 a.m. ET: Marriott International (MAR is expected to report adjusted earnings of 92 cents per share on revenue of $4.17 billion

  • 7:00 a.m. ET: Yum! Brands (YUM is expected to report adjusted earnings of $1.08 per share on revenue of $1.60 billion

  • 7:30 a.m. E.T.: Vulcan Materials Co. †VMC is expected to report adjusted earnings of 62 cents per share on revenue of $1.43 billion

  • 7:30 a.m. E.T.: Sinclair Broadcast Group (SGBIA is expected to report adjusted losses of $1.21 per share on revenue of $1.53. billion

  • 7:30 a.m. E.T.: Wingstop (WING is expected to report adjusted earnings of 36 cents per share on revenue of $86.22 million

  • Before market open: moderna (MRNAis expected to report adjusted earnings of $4.98 per share on revenue of $4.71 billion

post market

  • 4:00 pm ET: Booking Holdings (BKNG is expected to report adjusted earnings of 71 cents per share on revenue of $2.54 billion

  • 4:05 pm ET: GoDaddy (GDDYis expected to report adjusted earnings of 43 cents per share on revenue of $989.92 million

  • 4:05 pm ET: Uber (UBER is expected to report adjusted losses of 18 cents per share on revenue of $6.13 billion

  • 4:05 pm ET: twillio (TWLOis expected to report adjusted losses of 22 cents per share on revenue of $863.93 million

  • 4:05 pm ET: Etsy (ETSY is expected to report adjusted earnings of 72 cents per share on revenue of $575.59 million

  • 4:05 pm ET: TripAdvisor (TRIP is expected to report adjusted losses of 8 cents per share on revenue of $250.00 million

  • 4:15 pm ET: Marathon Oil (MRO is expected to report adjusted earnings of 97 cents per share on revenue of $1.85 billion

  • Aftermarket close: Spirit Airlines (SAVE is expected to report adjusted losses of $1.57 per share on revenue of $957.50 million

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