What can ASX 200 investors expect from the US Fed this week?

S&P/ASX 200 Index (ASX: XJO) investors are keeping a close eye on the US Federal Reserve this week.

The world’s most influential central bank will announce the next interest rate on Wednesday (overnight Australian time).

ASX 200 shares have been under pressure this calendar year as the Fed and most other global central banks, including the RBA, have raised interest rates to tame soaring growth inflation.

How high will interest rates be?

Unlike Australia’s quarterly inflation data, the United States publishes monthly inflation figures. And the figures for August surprised the upside, showing that inflation in the world’s largest economy was still at a nearly four-decade high of 8.3%. That’s well above the Fed’s 2% target.

After a series of rate hikes this year, the official US interest rate is in the range of 2.25% to 2.50%.

The big question facing ASX 200 investors today is not whether the Fed will raise rates again, but by how much.

What do the experts say?

Consensus forecasts say we’re likely to see another rate hike of 0.75%, but a growing number of analysts are now predicting a whopping 1.00% hike.

Ed Yardeni, chief investment strategist at Yardeni Research, is among the experts who believe the Fed could reach a full percentage point.

According to Yardeni (courtesy of Markets Insider):

It seems to me that they are committed significantly increase the interest rate at this meeting…I really think they’re going to come in and come to the conclusion that maybe they’ll just end it, maybe 100 basis points instead of 75 basis points. And then maybe another hike after that.

Tom Orlick, chief economist at Bloomberg Economics, is leaning towards a 0.75% rate hike, which is likely to come as a relief to ASX 200 investors as it has been largely factored into recent market movements.

However, Orlik points out that the US Fed is far from alone in tightening monetary policy this week:

In a busy week for monetary policy, we expect It rose by 75 basis points and the Bank of England by 50 basis points. Also on… [the] the calendar is the decisions of the central banks of Japan, Sweden, Turkey, Brazil, Indonesia and the Philippines, as well as updated information on key lending rates from the National Bank.

The bigger picture

We’ll end with Michael Kontopoulos, director of fixed income at Richard Bernstein Advisors, who reminds investors to look beyond monthly moves to the bigger picture:

September FOMC [Federal Open Market Committee] political action certainly matters, but it is not much not seeing the forest for the trees.

From our perspective, as investors who are really focused on the next 6-12-18 months, it’s not about one meeting, it’s more about the cumulative [rate moves]. We are waiting [Fed chair Jerome] Powell will also deliver another hawkish message.

How has the ASX 200 been tracking in 2022?

In afternoon trade this afternoon, the ASX 200 retraced its early gains to slip back into the red, down 0.08%.

Facing a series of rate hikes by the US Fed and the RBA in 2022 after more than a decade of easy money, the benchmark index is down 11.3% year-to-date.