Waiting for Wednesday: Fed's Statement Will Move the Markets As Rates Likely To Stay Untouched

by: Jonathan Liss

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Fed Is Expected to Keep A Foot on Rate Brake

  • Summary: Wall Street expects the Fed to keep interest rates frozen at 5.25% during the U.S. Federal Open Market Committee [FOMC] meeting this Wednesday. With the economy apparently softening and inflation worries lessening, it is unlikely the Fed will raise rates. A housing market slump and significantly lower gas prices are two more reasons it is unlikely the FOMC meeting will conclude with a rate raise on Wednesday. Still, analysts will be carefully scrutinizing the Fed's accompanying statement in an attempt to determine what the Fed's future plans may hold, and which economic issues it finds most pressing. But while investors will cheer if interest rates stay on hold, they may not rush out and snap up government bonds. Investors need to see, "fresh signs of the economy slowing even more dramatically," according to Thomas Girard, co-head of fixed income at Weiss, Peck & Greer in New York, and, "hints from the Federal Reserve that they are really moving away from raising rates" before taking up new positions.
  • Comment on related stocks/ETFs: Mark Mahorney is bullish on bonds, a position he concludes from his research into the last 3 times the Fed froze interest rates, following long up periods. J. Kyle Rosen, on the other hand, believes that with the VIX (the index that measures market volatility) at an all-time low, the real opportunity is in options right now, with treasury bonds providing a hedge - not an investment opportunity.

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