A 25 basis point rise in the fed-funds rate is pretty much baked into financial markets ahead of Wednesday’s Federal Reserve policy decision, but specific language in the central bank’s closely watched policy statement will likely determine the immediate reaction.
When the Fed announces the rate decision at 2 p.m. Eastern, investor eyes — and trader algorithms — will likely look to language providing so-called forward guidance on further interest rate moves. Translated into plain English, that means the Fed may raise rates again in the future, but that there’s no guarantee, Essaye said.
What would it take send the bulls scurrying for cover? A very unlikely, but not totally impossible, half percentage point rate hike would provide a jolt, Essaye said. When it comes to language, any tweaks that single a further rate increase is a certainty would have the potential to rattle investors.
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