The Federal Open Market Committee (FOMC) is expected to announce its third consecutive 75 bps increase in interest rates today at 02:00 p.m.
How might the market react to the rate hike
According to Meghan Graper of Barclays, the rate-setting meeting on Wednesday will likely propel a relief rally in the U.S. stocks since three-quarters of a point was well documented in recent weeks.
I think Fed days have been overwhelmingly positive for markets this year; the market has typically rallied on the heels of most meetings with the exception of Jackson Hole. Our view is that today is unlikely to depart from that script.
S&P 500 is currently down about 10% from its recent high, which is also why Graper is convinced the market has already de-risked today’s announcement.
Earlier this month, the U.S. Bureau of Labour Statistics said inflation was up 0.1% in August. (read more)
The relief rally is not very likely to last
On the flip side, however, Graper warns the bounce following the Fed decision is unlikely to last long as the central bank still has a long way to go in fixing inflation. On CNBC’s “Squawk Box”, she said:
“I also think it’s likely to be short-lived as the market reawakens to the reality that we aren’t anywhere close to the 2.0% end game and that end game is really where the problem resides for the market.”
The Barclays’ expert does not see the need of a full percentage point hike. She, however, agrees there’s at least “some” possibility of such a shock, in which case, the equity market could tumble further.
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