S&P/ASX 200 Index (ASX: XJO) investors are keeping a keen eye on the US Federal Reserve this week.
The world's most influential central bank will make its next interest rate announcement on Wednesday (overnight Aussie time).
ASX 200 shares have been under pressure throughout this calendar year as the Fed and most other global central banks, including the RBA, have been ratcheting up interest rates to tame soaring inflation.
How high will interest rates go?
Unlike Australia's quarterly inflation data, the United States releases inflation figures monthly. And August's figures surprised to the upside, showing inflation in the world's top economy was still running at a near four-decade high of 8.3%. That's far in excess of the Fed's 2% target.
Following a series of rate hikes this year, the official interest rate in the US sits in the range of 2.25% to 2.50%.
The big question facing ASX 200 investors today isn't whether or not the Fed hikes rates again, but by how much.
What are the experts saying?
Consensus forecasts maintain we're likely to see another 0.75% rate rise, but an increasing number of analysts are now forecasting a supersized 1.00% hike.
Ed Yardeni, chief investment strategist of Yardeni Research, counts among the experts who believe the Fed could go the full percentage point.
According to Yardeni (courtesy of Markets Insider):
It seems to me that they are committed to raising the interest rate significantly at this meeting… I do think they're going to come around and conclude that maybe just get it over with, maybe 100 basis points instead of 75 basis points. And then maybe one more hike after that.
Tom Orlik, chief economist at Bloomberg Economics, leans towards a 0.75% rate hike, which will likely come as a relief to ASX 200 investors as that's largely been priced into recent market moves.
Orlik notes, however, that the US Fed is far from alone in tightening the monetary screws this week:
In a busy week for monetary policy, we expect the Fed to hike by 75 basis points and the Bank of England by 50 basis points. Also on… [the] calendar are decisions from the central banks of Japan, Sweden, Turkey, Brazil, Indonesia and the Philippines, and an update on loan prime rates from the PBOC.
The bigger picture
We'll leave off with Michael Contopoulos, director of fixed income at Richard Bernstein Advisors, who reminds investors to look beyond the monthly moves to the bigger picture:
The September FOMC [Federal Open Market Committee] policy action certainly matters, but it's a little bit of not seeing the forest for the trees.
From our perspective, as investors who really focus on the next 6 to 12 to 18 months, it's less about one meeting but more about the cumulative [rate moves]. We expect [Fed chair Jerome] Powell will also give another hawkish message.
How has the ASX 200 been tracking in 2022?
In late afternoon trading today, the ASX 200 has given back its early gains and dipped back into the red, down 0.08%.
Buffeted by a series of rate rises from the US Fed and the RBA in 2022 following more than a decade of easy money policies, the benchmark index is down 11.3% year-to-date.
