Goldman Sachs said yesterday that financial markets are vulnerable because nobody can agree on what the Fed will do. While equity investors have been anticipating this moment with all the excitement and tension of a prizefight, as Bloomberg reports, bets on the outcome from the Federal Reserve’s rate decision are far more complicated than simply “win or lose” for stocks. Amid the tumultuous background, here are predictions of nine money managers and strategists on what to expect this afternoon…
1) Crisis of Confidence
The Fed would be well-served to raise rates on Thursday to avoid a crisis of confidence among investors, according to Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania. Market participants may see central bank inaction as a signal of concern over global economic growth, he said.
“If the Fed doesn’t do anything, it lends a bit more fear to the market that things are worse than expected,” he said. “In a funny way, the fact that they wouldn’t raise rates would send a little bit of concern into the market. It may not be the most well-received type of movement.”
2) No-Win Situation
To Kim Forrest, an analyst at Fort Pitt Capital Group Inc., which oversees about $1.7 billion in Pittsburgh, the stock market is doomed to fall no matter what the Fed does. With that in mind, the Fed should “just rip the band-aid off,” according to Forrest.
“It’s going to sell off either way because there’s so much tension built up into this,” she said. “If for some reason the Fed decides whatever the magic data is doesn’t exist right now, that could worry equity folks that there’s something the Fed sees that they don’t. If they actually do take the long-awaited 25 basis point, the market sells off as people say ‘wow it actually happened.”’
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