Fed rate decision: 3 key questions investors are focusing on

The Federal Reserve is set to wrap up its January FOMC meeting on Wednesday with Chair Jerome Powell speaking on the Fed's latest interest rate decision at 2:30 P.M. EST. Investors are watching closely as the debate on Wall Street — as to when and if the Fed will cut interest rates in early 2024 — has dominated most conversations. The policy decision can also have impacts that ripple through the economy.

Yahoo Finance Fed Reporter Jennifer Schonberger joins the Live show to discuss the top questions on the minds of investors ahead of the Fed's next big monetary policy move.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

SEANA SMITH: And Wall Street counting down to the Federal Reserve's first interest rate decision of the year. Investors are eager to hear from Fed Chair Jay Powell, hoping to get some insight on the timing of a potential rate cut.

"Yahoo Finance's" Jennifer Schonberger has the latest on that for us. Jen?

JENNIFER SCHONBERGER: Hey there, Seana. Yeah. The Federal reserve meeting underway for about an hour here in Washington, where Fed officials are widely expected to hold rates steady, but try to temper Wall Street's expectations for just how quickly the Central Bank could begin cutting rates.

Here are three things to watch at this afternoon's policy decision. Number one, will the Fed set the table to signal that rates are more likely to fall than to rise in the coming months? Some are hoping to see a tweak in the language of the official statement indicating that it no longer has a tightening bias to set the stage for eventual cuts.

Number two, will Fed Chair Powell try to walk back Wall Street on how soon the Fed will cut and how many times they'll cut? Investors are betting five cuts in 2024. And that they will begin in either March or May. Fed officials have cautioned they're not in a rush to cut rates, with Cleveland Fed President Loretta Mester even saying outright that March was too early.

Fed Chair Powell is expected to try to peel Wall Street back from the five rate cuts that investors have priced in versus the three penciled in by the Fed.

And number three, how will the Fed navigate higher economic growth? And could it cause them to remain on pause for longer? The challenge for the Fed is that economic growth continues to surprise to the upside. Clocking in at 3.3% in the fourth quarter, even as inflation has continued to drop. That is some questioning whether inflation could re-accelerate and cause the Fed to hold rates at current levels for longer.

This decision coming down at 2:00 PM Eastern followed by Fed Chair Powell's press conference at 2:30. I will have it for you live here in Washington.

BRAD SMITH: Jennifer--

JENNIFER SCHONBERGER: Back to you.

BRAD SMITH: --appreciate it so much. We're going to be tracking the market movements leading up to and through that decision.