Fed’s September meeting
The Fed is scheduled to meet on September 25–26. The Fed is widely expected to raise rates by 25 basis points during the meeting. The Fed’s minutes from the last meeting suggested that a September rate hike is more or less certain. The Fed started quantitative easing and the near-zero interest rate policy after the Great Recession to encourage more borrowing to boost the economy. The first rate hike was in December 2015 when the Fed started to slowly tighten its policy. Since then, the Fed has hiked rates (TLT) seven times. So far, there have been two rate hikes in 2018. which pushed the federal funds rate to 1.75%–2.00%.
Watch out for language
Since a September rate hike is almost a given, the more important thing for investors to watch would be the Fed’s language and tone, which will give a clue regarding the future interest rate trajectory. The Fed has a dual mandate of controlling prices and ensuring maximum employment.
Fed’s dual mandate
An outlook for higher inflation (TIP) could cause the Fed to be more aggressive. The Fed’s other key concern, the unemployment rate, is already running below what economists usually consider normal. Therefore, the Fed isn’t concerned about derailing the employment situation by being too aggressive.
Other important factors that could impact the Fed’s future rate hike outlook would be the impact of the ongoing trade war between the US (SPY) (VTI) and China (FXI) and the risk of the emerging market (EEM) crisis spreading. We’ll discuss all of these factors in more detail in this series.