Listen to What’s Said, It’s as Important as What They Do

Tomorrow the Federal Reserve will meet for this month’s FOMC meeting, which will conclude on Wednesday afternoon. The Federal Reserve conducts the Federal Open Market Committee meeting eight times a year, with only November and December remaining after this month.

It is widely anticipated that the Fed will announce and implement another interest rate hike which will be announced in their monetary policy statement. This statement will be released immediately following the conclusion of this month’s meeting on Wednesday.

The CME’s FedWatch tool currently predicts that a rate hike is almost a certainty. This tool predicts a 93.8% probability that the Fed will increase interest rates (Fed funds) by 25 basis points (1/4%) and a 6.2% probability that the Fed will increase interest rates by 50 basis points (1/2%).

With such a high probability of a rate hike this month, investors and traders will be listening intently to the verbiage of the Fed’s monetary policy statement for any insights as to whether or not there will be another interest rate hike this year.

According to the Federal Reserve’s current “dot plot,” they have penciled in a total of four rate hikes in 2018. Two of those rate hikes have already been initiated, and if the Fed raises rates this week, it will be the third rate hike this year.

However, the Fed has made it clear that their decisions are always data dependent.  Some traders believe that global economic weakness and the economic uncertainty in the United States as a result of the current trade dispute between the United States and China could curtail the implementation of four interest rate hikes in 2018.

Since it is widely believed that the certainty of a rate hike this month is already factored into current market sentiment, it is the possibility of a fourth rate hike that has not yet been factored into current pricing.

Lastly, this week the proposed tariffs on $2 billion worth of Chinese imports to the United States will begin. Initially they are set at 10% of the import value, however, by the beginning of 2019, they will be set at 25%.

To the extent to which these tariffs will stifle current economic growth in the United States is unknown. What is known is the longer the dispute continues, and more importantly, if the dispute becomes an out and out trade war, the effects on the economies of both the United States and China could be severe.

It seems as though at least for now the two superpowers are waiting to see which side blinks first. While those in power might believe whoever blinks first loses, the economic turmoil which could result from this action could have devastating consequences which spread globally.

Wishing you as always, good trading,