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Fed could surprise markets when traders least expect
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Loading...Markets are vulnerable on surprises from the Fed, although the minutes of the meeting which will publish on Wednesday are pretty stale.
Traders do not expect much reaction to what should be old news. But the risks are two - the Fed may sound surprisingly dowish, counter to the recent statements by some Fed officials. On the other hand, may be more aggressive against the statement of February 1, when kept interest rates.
Tom Simons, money market economist, said he's looking at the Fed minutes specifically for comments on the outlook for inflation and anything else that could shape a rate hike decision. According to him, there are many good arguments for raising interest rates and the only argument against it is they haven't expressly told us they're going to.
Deutsche Bank chief U.S. economist Joseph LaVorgna does not expect the Fed to signal a hike for March in the minutes, and in a note he said there were still relatively low market odds for a March move. The reason for this is that during the meeting, they will not have a report on GDP for the first quarter, as well as the specific details of a potential fiscal stimulus package will likely not be known.
Strategists say that after the Fed minutes, the markets will follow the release of Donald Trump and his plans for corporate taxes on February 28 during the Congress.
The market has been watching for a reaction from Trump on the border adjustment tax aspect of the House tax plan, which already has opposition in the Senate.
But opponents say it may not work as smoothly as some expect. The border adjustment tax supposedly would send the dollar up by 25 percent, but some economists worry it will not be a smooth ascent and it will end up creating price inflation as companies raise prices.
As of now, the stock market is trading on the prospect of stimulus and higher growth.
Besides the Fed minutes, there are two Fed speakers Wednesday, Robert Kaplan and Jerome Powell, respectively in Dallas and New York.
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