What To Expect From This Week's Fed Meeting

The Federal Reserve beginning Tuesday is holding a two-day meeting. It’s widely anticipated given the strength of the U.S. economy that the Fed will once again raise interest rates by 0.25 percent to a range of between 2.0 percent and 2.25 percent. Investors are also anticipating another rate hike on the way in December.

The fact that a September rate hike is nearly certain at this point shifts focus to the future.

“When you have a Fed meeting and everybody knows what’s going to happen it puts more emphasis on what they say going forward,” TD Ameritrade chief market strategist JJ Kinahan told Benzinga. “The problem when we don't have an idea is Monday and Tuesday is death [for trading]. At least with this, Monday and Tuesday can still trade normally.”

Hawkish 2019?

RSM US LLP chief economist Joe Brusuelas says the Fed has done a fairly good job hinting at two more rate hikes this year, but its commentary this week could set the stage for a more hawkish 2019 as well.

“In our estimation, we believe that there is a better than even chance of the Fed, via its median dot plot forward look at rates in 2019 will point to four additional hikes next year,” Brusuelas recently said. “The Fed will likely make no change the forecast beyond 2019.”

Trade War Impact

Despite the fact that employment numbers are up and second-quarter GDP growth was 4 percent and inflation has hit the Fed’s 2-percent target, there is also an 800-pound gorilla in the room creating uncertainty in the U.S. economy. Nicholas Colas, co-founder of DataTrek Research, recently pointed out that the Fed used the word “tariff” 41 times in its most recent Beige Book, suggesting the Fed is keeping a close eye on the trade war.

“While the economy continued to expand moderately, uncertainty about trade tensions is holding some businesses back from capital investment,” Colas said. “Another couple of areas of concern include: worker shortages which are hurting sales or postponing projects, and some indications of a deceleration in inflation.”

Full Speed Ahead

Still, LPL Financial chief investment strategist John Lynch says the trade war likely won't change the Fed’s plans for now.

“Main Street’s growing uneasiness over trade tensions remains a concern, but the overall impact on growth has been limited so far,” Lynch said. “Inflationary pressures are also rising modestly, but we don’t see the current pace of inflation as enough to threaten economic output or speed up the pace of the Fed’s interest-rate increases.”

There may be no major surprises in store for the market this week, but investors will certainly be watching the Federal Reserve press conference following the two-day meeting, which is scheduled for Sept. 26 at 2:00 p.m. EST.

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