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By G. Steven Bray
The Federal Reserve meets this week, and probably the best telegraphed Fed rate hike in history will come to pass. However, the market reaction could be a big yawn. In fact, the Fed NOT raising short terms rates this week would be more likely to cause market havoc.
Markets have priced in an expected quarter point rise in the Federal Funds Rate, the tool the Fed uses to influence short term interest rates. The unknown at this point is what comes next. Will the Fed telegraph its intention to raise rates further, and if so, how quickly will that occur? Will the Fed acknowledge a softening global economic picture and the potential effects of higher US interest rates?
It’s a Goldilocks situation except no one is quite sure of the correct temperature of the porridge. If you’re floating your mortgage rate, this is a high-risk week. Rate volatility is likely, but absolute movement is hard to predict. Markets will taste and re-taste the Fed’s porridge on Wed. If the Fed gets it just right, rates could stay right where they are, which is a pretty nice place to be.