The Fed's Dilemma

September 19, 2016

The Fed's Dilemma Photo

On Wednesday around 2:00 p.m. ET, we will find out the Federal Reserve's (Fed) decision to either keep interest rates unchanged or increase them by 25 basis points. Most market participants don't expect the Fed to increase rates, and it is very unusual for them to surprise the market. The Fed has gotten themselves into a bad spot by talking about rate hikes for the past two years and only increasing rates once due to market movements and events such as the Brexit. If the Fed doesn't increase rates, it reinforces the notion that they are hostage to market movements. If they do increase rates, they risk catching the market off guard.

I am holding to my view that the odds the Fed will increase rates this week is significantly greater than what the market is pricing in. If they do increase rates, expect significant volatility in markets across the globe as markets don't like uncertainty.

Also keep an eye on the Bank of Japan this week, as they will likely announce some new monetary policy tactics.

Tags: Monday Morning O'Malley | Federal Reserve | Interest Rate | Market volatility | Janet Yellen

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