Fed rate decision to shake markets this week

According to finance.yahoo.com on September 16, this week's interest rate decision by the US Federal Reserve (Fed) promises to create major shocks in the global financial market.

This is a long-awaited event, with more than 14 months having passed since the Fed last raised interest rates in July 2023. The wait is made more intense by the fact that it has been 54 months since the Fed last cut interest rates in March 2020, when the COVID-19 pandemic broke out and caused global stagnation.

Analysts and investors are now watching closely to predict whether the Fed will cut interest rates at its two-day meeting in the middle of this week. While half of traders expect the Fed to cut rates by a quarter of a percentage point to a range of 5% to 5.25%, the other half expect a more aggressive cut of half a percentage point to a range of 4.75% to 5%. The split reflects the uncertainty and high expectations in the market for changes in monetary policy.

The Fed's official decision will be announced at 2 p.m. on September 18, and it could cause some strong moves in the stock market. If the announcement doesn't have the expected effect, two events will be in focus. First is a press conference by Fed Chairman Jerome Powell, scheduled to start around 2:30 p.m. Powell often surprises traders with points that are not included in the official announcement, and investors will be paying close attention to guidance on the number of future rate cuts.

The second thing to look out for is the dot plot, an important tool that shows Fed officials' projections for the direction of the economy, inflation and interest rates over the next year and two to three years. While these are just projections, they give investors a snapshot of how the Fed might adjust monetary policy in the coming period.

The stock market has enjoyed a strong rally this year, with the S&P 500 up 18% and the Nasdaq Composite up 5.8% over the past week. The rally reflects investors’ expectations that the Fed could cut interest rates, boosting demand for stocks, especially in the technology sector.

In addition to the interest rate decision, there are several important economic reports this week. First up is August retail sales, due out on September 17. Many analysts expect a decline from July. Homebuilder confidence from the National Association of Home Builders is also being closely watched, as demand has weakened and many builders have had to cut prices.

Given these factors, the Fed’s interest rate decision can affect not only financial markets but also other economic fundamentals. A change in monetary policy can reshape investors’ expectations of future economic growth, inflation and financial prospects.