This is easy. In the week ahead, the Federal Reserve’s decision and statement on interest rates will hold sway over investors. What’s not easy is the Federal Reserve’s decision and statement on interest rates.
On Tuesday and Wednesday, the central bank’s Federal Open Market Committee will meet and discuss the current state of the U.S. economy. If enough of those gathered around the table believe the economy is accelerating faster, rates will be raised. If there are enough doubters are among them, its rate will remain the same.
The central question, as it always is, will be what should it do to its target short-term interest rate? Leading up to the meeting, there have been plenty of questions about how the group will answer.
The Financial Times last week said an interest rate hike would be “the biggest shock to the markets since” Janet Yellen become chairman of the bank two and a half years ago. There have been plenty of shocks in that time: Brexit, the Chinese devaluing their currency, the plunge in oil prices, negative interest rates, etc.
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The pickup in stock market volatility this month has been attributed to recalculating the odds of the Fed raising its interest rate sooner than expected. Many don’t think the bank will act at it’s meeting in November, less than a week before Election Day. The agency doesn’t want to be viewed as overtly political, though it’s increasingly pulled – sometimes willingly – into fiscal policy skirmishes. So if it were to act on rates before the end of the year, well, the week ahead would be the week for it to do so.
The data, which the Fed steadily has said it is dependent upon for its decisions, has been mixed. Job gains have been decent and wages are rising while productivity continues slipping and the official inflation rate is stubbornly low. The economic statistics are unconvincing to many that the Fed should hike rates.
The simple fact for investors is the Fed still matters. The more difficult challenge is how to manage the suspense.
Financial journalist Tom Hudson hosts The Sunshine Economy on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.