The NASDAQ, S&P 500, and Dow Jones stock indices edged lower on Monday and Tuesday. This suggests that ahead of the Fed meeting, market participants are still worried or anticipating a new tightening of monetary policy. As we noted, US stock indices recovered from their recent decline very quickly. In fact, it took them only five days to recoup their previous losses incurred in 10-15 days. However, amid the upcoming meeting of the US Federal Reserve, sentiment in the stock market began to change to bearish again. Notably, traders have already mulled over all possible decisions that might be made by the regulator. No new information was received on the first three days of the new week. There were no speeches by Fed representatives. Only a few experts representing large investment banks expressed their views on this issue. Thus, economists at Bank of America believe that the Fed may announce a key interest rate hike today. However, most experts agree that the rate will not be raised earlier than March 2022. Thus, today, the Fed will most likely decide to reduce its asset purchase program. Probably, Fed policymakers will agree to increase the pace of tapering its monthly bond purchases. This, in turn, will lead to a stronger US dollar and a decline in stock indices. Notably, monetary policy tightening is a bearish factor for the stock market.
Besides, the press conference with Jerome Powell will also be in the focus of investors. After all, it is Powell who will make it clear in which direction the Fed will now move in the next few months. It is Powell who is in charge of the further dynamics in the stock and foreign exchange markets. If the head of the Fed drops a hint that the regulator is ready to double the pace of tapering bond purchases and raise interest rates as soon as the QE program is completely phased out, the US dollar will receive strong support, while the stock market may enter a new round of correction. In addition, the Fed will publish a chart known as the "dot plot" to show how many Fed members support a rate hike in 2022. Earlier, 9 out of 18 policymakers supported this step. If their number increases, this would mean that everything is going according to plan. Despite this, most experts and market participants anticipate a double rate hike next year. Thus, it is worth paying attention to Jerome Powell's speech and the Fed's decision on monetary policy tapering.