The first rate hike in the US since 2018.

Today after a two-day meeting FOMC a decision will probably be made to raise the range for the federal funds rate by 25 basis points from 0-0,25 to 0,25-0,5%. This will be the first increase since December 2018.

The market has been speculating for months about which course it will choose Federal Reserve in light of high inflation, labor market reconstruction, wage pressure, as well as problems with the availability of individual goods and the ongoing war in Europe.

Two important arguments for a cycle of increases

It seems that the Fed will decide on a cycle of interest rate hikes, taking care of its statutory goals. The first is the situation on the labor market, which is very good. There is even a shortage of workers in the US. The second is taking care of the price level. Here, inflation has been above 2 percent for months.

The scale of the rate hikes remains an open question. Investors seem to expect as many as seven increases, which would be one of the larger cycles.

Expectations alleviating factor

However, there is a factor on the horizon that could slow down the enthusiasm for quick rate hikes in the US. We are talking about the market expectations as to the shape of the yield curve in the future. The market is starting to expect that profitability curve in the US, that is, the difference in the interest rates on 2 and 10-year bonds will be negative.

History seems to show that, at least since the 70s, there has been no recession in the United States that has not been preceded by a yield curve reversal. It may, therefore, be a factor hampering the Fed's incentive for milder rate hikes.

The decision will be made today at 20:00, and the press conference after the meeting will start at 20:30. Then we will find out at what level this year and in the following years FOMC members see the main interest rate in the US, how they view inflation and the labor market.