The Federal Open Market Committee is meeting Tuesday and Wednesday, when it will release a statement in the afternoon about whether it will raise the federal funds rate and its latest economic forecasts (also known as the “dot plots”).
“While the market has not priced in a 100% chance of a rate hike, it has come very close,” said Matthew Peterson, LPL Financial’s chief wealth strategist, in a commentary on Tuesday.
What might the Fed do?
“I do expect to see a rate hike tomorrow, not least because the markets expect it, but also because there seems to be a real shift in the Fed’s thinking, which has turned from worries about the risks of raising rates to worries about keeping them too low,” explained Brad McMillan, chief investment officer of Commonwealth Financial Network.
“Even the most dovish Fed members seem to have adjusted their positions recently,” McMillan said in a note shared with advisors and clients on Tuesday. “This says to me that the Fed is likely to keep raising rates. In fact, I would not be surprised to see language to this effect this week.”
As of Friday, June 9, the fed funds market was pricing in a 96% chance of a 0.25% rate hike this week. “Of the economists surveyed by Bloomberg, 73 out of 78 believe a rate hike is in store. This would bring the fed funds rate to a range between 1.00–1.25%,” Peterson explained.
Though the markets and the Fed are never “perfectly aligned” on the direction of interest rates, the LPL strategist says, they were “as close as they had been in a while prior to the March Fed meeting.”