Don’t get into a fight with anyone who is bigger, and judges success differently, than you.
In other words, don’t fight the Fed.
For the past year, the Fed has been fighting to get its target interest rate back into what it considers a more normal range and cut back on its massive portfolio of mortgage-backed bonds. It has been talking about returning to normal after the Great Recession for at least four years. A raging bull market in stocks is not its goal.
In the week ahead, its effort will continue with the agency widely expected to raise the high-end of its target short-term interest rate to 2.5 percent. That gets the Fed closer to normal, but still at historically low borrowing rates.
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Stock investors didn’t pay a price by fighting the Fed over the past year – until they did. Stocks tied to interest rates – banks, brokers, insurance companies – have weighed heavily on the S&P 500 over the past three months. While the financial stock sector isn’t alone in experiencing a steep decline, it indicates investor appetite to buy and hold these stocks as the Fed raises rates has disappeared.
On Wednesday, at the end of its two-day meeting, the Federal Reserve will release its quarterly “guess-timates” of economic data, including its own interest rate. Previous projections called for three more rate hikes in 2019. The stock market will take its direction from the updated prediction and accompanying explanation.
While there is plenty for stock investors to be anxious about – a trade war, a government shutdown, slower economic growth – the Fed may signal the bell is ringing in this round of its fight to normalize its interest rate.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView.