Fed FOMC Captures the Market Attention

Forget Football; the most watched event this week for the markets concerns the Federal Reserve.
America’s central bank wraps up its two day meeting on Wednesday and will subsequently outline its latest monetary policy.

Investors’ key focus: interest rates, interest rates, interest rates.

The Fed has been holding down the federal funds rate near zero since the financial crisis, but a strengthening economy has lead to speculation that it will raise rates sooner than later. Most analysts predict the first rate hike will occur next summer.

In a worst case scenario, the Fed would raise rates too quickly, and the move would derail the stock market rally and the U.S. economy.

Related: 2008: Worse than the Great Depression?

Keep an eye on the Fed’s policy statement Wednesday. The precise wording matters. In previous statements, the Fed has said it intends to keep rates low for a “considerable time” until the job market improves and as long as inflation remains in check. If the Fed removes those two words, analysts say the markets could sell off as investors brace for a jump in rates.

“Dropping ‘considerable time’ would be a major hawkish step,” wrote Citigroup (C) strategist Steven Englander, in a research note Friday.

Fed chief Janet Yellen will hold a press conference Wednesday after the Fed releases its statement, and most economists believe she will do her best to reassure investors that the Fed plans to keep supporting the economy as long as necessary.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza