Posted | by David Moenning |

And now we wait. For this afternoon's Fed meeting, that is. Make no mistake about it; while there is plenty of other "stuff" for traders to occupy their time with today, what Jay Powell and friends have to say about the economy, inflation, rates, "the runoff," and the now famous "dots" will likely be the focus of attention this afternoon.

We know two things for certain about the Fed meeting. First, Powell & Co. are going to increase the Fed Funds rate again. Second, any "surprises" from the accompanying statement and/or the ensuing press conference will create more volatility in the stock market. As such, understanding what the market "expects" could help in terms of assessing this afternoon's action. So, let's run through what is expected.

For starters, there is the amount of the rate hike. Just about everybody in the game is looking for an increase of 25 basis points (0.25%), which would put the Fed Funds rate in a range between 1.5% and 1.75%. However, we assume we know the level of the increase due to the extreme transparency provided by Powell's predecessors Yellen and Bernanke. While I certainly don't expect the new Fed Chair to shock the markets with something like a 50-basis point move, it is important to remember that this type of thing has happened in the past.

Next up will be the Fed's view of the economy. At this meeting, the committee will update their economic projections for the first time since December. If you will recall, the FOMC upgraded their view of the economy in December in response to lower taxes and higher government spending. And this was before the fiscal stimulus had actually begun. So, look for some discussion about the impact on the economy - as in projections for a lower unemployment rate, improved GDP growth rate and higher inflation.

The key question traders are focused on however is the number of rate hikes to expect this year. Three increases (including today's) would appear to be baked into the market's cake already. However, expectations are growing that a fourth rate hike could be in the mix during 2018. So, in short, traders will be listening to see if Powell will start to signal or hint that such a move is in the cards.

But the real action is likely to occur during the presser. It is here that analysts expect to get a better look at what Mr. Powell is all about. The current consensus seems to be that the new Fed Chair will adopt a more hawkish tone. And economists would love to get more on Powell's view that "headwinds have become tailwinds."

The bottom line is that the algos will respond to the key words programmed into their logic and that market moves will be swift once the Q&A begins. However, it is important to remember that humans will likely need to interpret the Fed Chairman's message before the "real" post-meeting trend develops.

So, stick around, this is probably going to be interesting.

Thought For The Day:

You must believe in a universe that is created and guided by an intelligence greater than your ego. -Wayne Dyer

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: None - Note that positions may change at any time.


The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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