December 16 2017

USA stocks open higher ahead of Fed meeting

December 16 2017, 03:05 | Clarence Walton

In the week ahead investors will be watching the Fed meeting Trump's speech at the U.N. and whether or not bitcoin can

Wall Street’s week ahead The Fed Trump at the U.N. and bitcoin

The Federal Reserve will begin shrinking the enormous portfolio of bonds it amassed after the 2008 financial crisis to try to sustain a frail economy.

Markets will also be watching for clues on the timing of the Fed's next interest rate hike, as these tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

The Fed has telegraphed its move for months, and investors are thought to be prepared for it. "It could hurt financials and the overall market might not like the uncertainty", he added. The risk exists that investors could become spooked by the rising number of bonds being transferred back into private hands.

Notably, the Fed on Wednesday lowered its long-term forecast for the federal funds rate to 2.8 percent, down from 3 percent in its June forecast. Tokyo's Nikkei surged 2 percent overnight. Ongoing lackluster U.S. economic data, outside of the labor market, coupled with persistently soft inflation readings and depressed inflation expectations, gave the Fed few options heading into today's meeting.

Philippine equities reached a record high on Monday, led by market's optimism over the country's tax reform package, while other markets in the region remained cautious ahead of the Fed meeting. As expected, policy makers left the benchmark interest rate unchanged in a range of one per cent to 1.25 per cent.

Economist Joel Naroff suggests that the aftermath of hurricanes will have any effects on the plan of the Feds to raise its rates.

Some Fed officials have warned against raising interest rates until inflation - which reflects the prices of everything from meat and cheese to houses and cars - meets the goal of 2% that they consider healthy for the economy. Inflation has remained persistently below that level.

The Fed's next meeting is scheduled for October 31 and November 1, but the Fed is unlikely to raise rates any sooner than its final meeting of the year, in mid-December.

Fed Chair Janet Yellen begins speak at 14:30 EDT/18:30 GMT; her Q&A should prove equally market moving as the initial statement release.

Weak inflation data in the United States has prompted investors to dial back their bets on future rate hikes, but the market may be underestimating the Federal Reserve, according to Nick Gartside, global chief investment officer of fixed income at JP Morgan Asset Management.

And there's the political item: Will President Trump reappoint her?

By contrast, White House economic adviser Gary Cohn's odds of helming the Fed are thought to be slipping, according to KBW and other analysts. Most investors aren't expecting interest rates to rise.

That is considerably more hawkish than the collective view of financial markets, which are pricing in just one rate hike over this period, due to low inflation.

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