The FOMC is Set to Raise Rates: QQQ, DIA, SPY, IWM
Expect the FOMC to raise interest rates when it meets on July 26 and makes its decision on July 27. The FOMC has been clear, they have been watching economic data closely and they have claimed that they are largely dependent on that data to make their decision.
The recent release of FOMC minutes also revealed opinions that many fed governors believe that the economy was already at full employment, and the consensus was that inflationary pressures would push inflation towards their target objective of 2% and some readings already suggested that inflation was pressing above 2%, but their focus on inflation was energy prices.
The strong labor report issued on Friday makes the weak labor report from last time look transitory and if weak data from last time was the reason the FOMC did not raise interest rates this strong data sets the stage for them to take action.
However, the uncertainties surrounding Brexit also influenced the FOMC last time. In the minutes they stated clearly their concerns about the upcoming vote and although the employment data gave them a data driven reason not to raise interest rates it certainly seemed as if the risks surrounding that vote played a huge role in their decision.
In fact, after the vote we learned that central banks around the world were all on high alert before the vote, steps were taken to prevent financial mayhem, and raising interest rates before such an important event would clearly be ill timed, especially if financial turmoil had hit.
As it turns out, there was turmoil, but the nervousness that initially existed has been reversed and although the currency markets are still questionable, the dow Jones industrial average, S&P 500, and NASDAQ are clearly discounting Brexit already.
Strong economic data, the quelling of Brexit fears by equity markets, and the expectation of a repatriation of inflation going forward sets the stage for an FOMC rate hike.
A Rate Hike would b very bad for: QQQ, DIA, SPY, IWM
Our macro-economic model, The Investment Rate, tells us that tightening monetary policy at this particular time will ultimately lead to recession, but given the excessive valuations levied on the stock market today we believe that there is much greater risk as well. For more information about our longer term assessments please visit Stock Traders Daily