Do high prices affect the purchase of houses in the US?
3:04
New York (CNN Business) ––
All eyes will be on the Federal Reserve (FED) this Wednesday, as it concludes a crucial policy meeting in Washington, the outcome of which will have repercussions for millions of American families and businesses, as well as for the economy.
And just before the midterm elections.
For the first time in 22 years, the central bank is expected to raise interest rates by half a percentage point, as one of several aggressive measures the Fed is expected to take to calm the economy amid the worst inflation in 40 years.
In March, the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point for the first time since late 2018.
The Federal Reserve raises interest rates for the first time since 2018
However, inflation has continued to rise since then to reach a new 40-year high.
Although the labor market has recovered further, the Fed's usual pace of raising a quarter percentage point at a time may prove insufficient now.
Economists -- including some at the Federal Reserve -- believe the United States is approaching what experts call "peak employment."
And with Russia's war in Ukraine still ongoing, pressure on prices for goods like food and energy is unlikely to ease any time soon.
Which leads to a perfect mix for tight monetary policy.
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What is expected from the Fed
How does the interest rate increase affect me?
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Still, investors have already priced in the expected rate hike, after Fed Chairman Jerome Powell said last month that a half percentage point hike would be "on the table," so at The stock market should not be surprised by the monetary policy announcement this Wednesday.
The key will be in the details and direction of the Fed's policymaking committee, as well as its plans for its huge balance sheet.
"I expect the Fed to signal that another half percentage point increase is likely in its next decision in June, and that additional increases ––probably with no details on the number or magnitude––will occur in the second half of the year," said Bill Adams, chief economist at Comerica Bank.
Interest rate increases are already here.
What does that mean for you?
"The Fed wants to get short-term interest rates back to a level that is at least neutral -- that is, neither adds to nor subtracts from growth -- as quickly as possible without causing financial market turbulence," Adams added. .
However, it is difficult to pinpoint exactly where this neutral level lies.
It could be around 2.5% or less, according to Adams.
The Central Bank's decision will be published at 2 pm Miami time, following the first face-to-face press conference with Powell since the pandemic began.
FedFederal Reserveinterest rates