By Lewis Krauskopf

NEW YORK, (Reuters) – Investors have been preparing for the Federal Reserve’s last meeting. Market participants are eager to find out how fast the central bank will finish deleveraging its bond-buying program. They also want to see signs that it might raise interest rates in 2022.

Stocks are back at record highs following last week’s selloff – a market spasm brought on by worries over the Omicron variant of the coronavirus and comments from Fed Chairman Jerome Powell, who said the central bank may discuss speeding up the reduction of its $120 billion per month bond buying program at next week’s meeting.

However, renewed volatility is possible if the Fed adopts a less hawkish view than was expected on rolling back the easy-money policies that helped stocks more that double since their March 2020 lows. This includes a sharp reduction in bond purchases that opens the door for the Fed to increase rates earlier.

The Fed’s concern about inflation could cause market turmoil, Powell stated. This is because the Fed has stopped referring to it as “transitory”. On Friday, data revealed that consumer prices experienced their greatest annual gain in over 40 years. This supports the need for higher rates.

“The biggest factor in the equity market remains and will remain to be interest rates,” said Jack Ablin, chief investment officer at Cresset Capital Management.

High yields, which may rise in anticipation of tighter money policy, can dampen the appeal of stocks. They create a larger discount for future cash flows of companies and can potentially push up valuations already high by historical standards.

Refinitiv Datastream reports that the’s current 12-month forward earnings estimate is 20.5 times higher than its historic average valuation of 15.5 Times.

Although the yield on the 10-year Treasury benchmark note has increased by 15 basis points to 1.49% since the beginning of March, it is still below its March peak of 1.776%.

Some stocks are already being affected by rising rates, especially technology companies and growth businesses that prospered under the lockdowns of 2020.

However, the broader market has tolerated tightening of monetary policy. Analysts at BofA Global Research stated in a report that the stock market has risen largely since the Fed normalized its policy over the past decade.

The Fed started “tapering” its Treasuries purchases last month. It would have been able to finish the wind-down in mid-2022 if it had not done so quickly. After Powell’s comments investors believe that the Fed may accelerate its reductions to end bond-buying in March. If this happens, it could lead to the Fed potentially raising rates sooner.

The number of bets placed on rates increases in the past has also increased. According to FedWatch, the CME Group (NASDAQ:) FedWatch program, Friday’s traders saw an increase of more than 50% in their chances for a rate rise by May 2022. That is almost double what they had a month ago.

Investors want to hear the view of the central banks on Omicron Variant’s potential effect on economic growth and inflation.

UBS Global Wealth Management has outlined a possible scenario in which the virus could complicate supply-chain problems that have contributed to the rise in inflation. This raises concerns about whether the Fed should tighten its monetary policy more quickly. The bank’s base case scenario, however, assumes the Omicron variant will not derail the recovery.

Mona Mahajan (senior investment strategist, Edward Jones) said that investors could get more clarity from the Fed meeting after recent volatility spikes.

“It feels like the market has climbed two walls of worry already: Omicron and the path of the Fed,” she said. “I do think over the next couple of weeks we will get a little bit more certainty on both fronts.”