The big news for investors this week is the two-day Federal Reserve meeting that kicked off Tuesday. The Fed is widely expected to raise interest rates for a final time Wednesday, but investors will be watching closely for what the Fed has to say about its outlook for 2019 and beyond.
Long-Term Plan A Mystery
Yields on 10-year U.S. Treasuries on Tuesday dropped to 2.832 percent on Tuesday after economic slowdown fears sent the S&P 500 tumbling Monday to its lowest level of 2018. The Fed generally tries to be as predictable as possible to minimize the impact its meetings have on financial markets, but experts say the Fed’s 2019 remains a mystery at this point.
“It has gotten hard to figure out what the FOMC will do, and even more importantly, what the market wants the FOMC to do,” Raymond James analyst Kevin Gildis wrote on Tuesday.
According to LPL Financial Chief Investment Strategist John Lynch, investors are already assuming a rate hike Wednesday and will be focused on 2019 commentary.
“Although a complex economy often creates unknown challenges, we remain confident that the Fed’s current flexible approach may lower the likelihood of a policy mistake,” Lynch said Tuesday.
December Hike No Guarantee
President Donald Trump, who has been highly critical of the Fed and his appointed chairman Jerome Powell, tweeted that the Fed should reconsider raising interest rates.
“Don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers,” Trump tweeted. The “50 Bs” refers to the Fed’s reduction of its balance sheet by up to $50 billion per month.
Shawn Cruz, senior trading specialist for TD Ameritrade, told Benzinga Wednesday’s announcement will certainly be more interesting than the typical Fed meeting.
“I think for a long time it was a foregone conclusion that the fed was going to move in December, but now there’s a chance they might not,” Cruz said.
Cruz said the expectation for three additional rate hikes in 2019 has now dropped to between one and two more hikes.
“I expect them to say something to the effect that they’re 'going to continue to watch incoming data and adjust policy as necessary' which I think the market will interpret as dovish,” he said.
Investors In Limbo
According to the CME FedWatch Tool, the bond market is pricing in a 73.2 percent chance of a 0.25 percent rate hike Wednesday, up from just a 68.9 percent chance one month ago.
Investors are certainly hoping the Fed’s message is as dovish as possible. The SPDR S&P 500 ETF Trust SPY is now down 11.1 percent overall in the past three months.
Related Links:
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
