Economy and Markets Brace as the Central Bank’s First-rate Hike is Set to Come in Next Two months


If everything goes as per the plan, the central bank in about two months will increase first-rate in three years.

The Federal Reserve previously increased rates in late 2018.

In July 2019, central bank reduced its benchmark borrowing rate to zero.

Wall Street is seeing closely as central bank officials are preparing to return to more conventional policy. Federal Reserve indicated a policy shift a month ago.

Jim Paulsen, chief investment strategist at the Leuthold Group said, “When you look back historically on the Fed, it’s usually multiple tightenings before you get in trouble with the economy and the markets.”

Paulsen anticipates the market to witness the initial hike in March 15-16 Fed meeting.

Paulsen said, “We’ve developed this attitude on the Fed based on the last couple decades where the economy was growing at 2% per annum. In a 2% stall-speed economy world, if the Fed even thinks about tightening it’s damaging. But we don’t live in that world anymore.”

There are about 60% chances of first-rate increase in March and 61% probability of two more hikes by the end of 2022 as per the opinion of CME’s FedWatch Tool

The Fed is planning to increase rates to respond to increasing inflation which is increasing at the fastest rate in last 40 years.