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- This is how the Fed could surprise markets Wednesday
This is how the Fed could surprise markets Wednesday
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Loading...The Fed is not expected to take any action, but it could turn sentiment Wednesday.
Strategists say while the Fed is not expected to raise interest rates, it could talk the talk of a confident-sounding central bank, set on hiking rates three times, as it has forecast for this year. That could be negative for bonds, and interest rates could rise as a result since many expect just two hikes.
"I don't think it's hawkish, I think it's going to be positive. They have to acknowledge the fact that the economy is doing well and better than it was in December. You'll have to see an upgrade of the economy in their statement," said David Woo, Bank of America Merrill Lynch, head of global rates and currencies research.
Jim Caron, fixed income portfolio manager at Morgan Stanley Investment Management, said the risk for markets is the Fed sounds more hawkish in its 2 p.m. ET statement. Caron said he doesn't expect to get much out of the statement, but he's waiting for Fed Chair Janet Yellen's Feb. 15 congressional testimony on the economy. According to Fed funds futures, traders see about a 20 percent chance of a rate hike for March.
"If she's thinking about doing something, she'll probably tip her hand [in February's testimony] and set us up for what she's going to do in the March meeting," he said. "The March meeting is a lot closer than we all probably think … that's particularly something to look at and focus on. CPI has been higher. Inflation seems to be stabilizing and moving higher. Economic activity and growth and a lot of those confidence measures, like consumer confidence, are looking good. Broadly speaking, the data has been good as well."
For that reason, the data is also key on Wednesday. There are monthly auto sales issued by auto manufacturers throughout the morning. ISM manufacturing data is at 10 a.m. ET, and Markit PMI data is at 9:45 a.m. There is also the 8:15 a.m. ET release of ADP payrolls, expected at 164,000.
"People are pessimistic about Trump. That's what this is all about. You have to be willing to look through the noise. There's a lot of noise," said Woo.
Despite the expectations, if today the Fed raise interest rates in the US, it will most likely observe a strong and unexpected increase in the dollar.
But at first the data for ADP at 15:15 of the states.
Expect high volatility in the minutes after 15:15 today.
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