With the Federal Open Market Committee set to decide on interest rates later today at 2:00pm Eastern Time, a few broad-market ETFs are getting an early boost ahead of the decision.
As of 1:00pm Eastern Time, SPDR S&P 500 ETF (NYSEArca: SPY) is up 0.08%, Invesco QQQ Trust (NYSEArca: QQQ) is up 0.50% and iShares MSCI Emerging Markets ETF (NYSEArca: EEM) is up 0.24%.
The general consensus across the markets point to rate hikes given the unemployment rate is at a low 3.8%, wages are rising and inflation is currently at a healthy level. This could explain the early rise in these broad-market ETFs as the predisposition toward rate hikes are already reflected in the current prices.
“Markets are currently pricing in a 46% chance of four rate hikes across the year, meaning traders are fairly equally divided. Yet given the backdrop of troubled global trade [relations], the Fed could be keen to hold off a little longer. Consumer price inflation might be at 2.8% but [the PCE price index], the Fed’s preferred measure of inflation, is still at just 1.8%, meaning time is still on the Fed’s side,” said Jasper Lawler, Head of Research at London Capital Group.
Traders expect no surprises with the anticipation that The Fed will raise its benchmark federal-funds rate to a range between 1.75% and 2%. However, this is certainly not set in stone as the central bank is entering a delicate policy phase as the economy expands.
Related: Are U.S. Interest Rates About to Rise Again?
“The immediate market reaction [to the Fed]is likely to colored by whether the median forecast in the dot plot moves to four hikes this year. We think it will, but would caution against reading too much into this measure which is always prone to discrete jumps,” said Adam Cole, a chief currency strategist at RBC Capital Markets.
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