Stocks, Dollar Rally Ahead of Expected Fed Rate Hike

Markets are rallying in the lead-up to the much-anticipated Federal Open Market Committee meeting, where the central bank is expected to announce another 0.75% increase to the federal funds rate.  

Both the S&P 500 and the Nasdaq rose 0.5% in midday trading. The SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ) climbed the same amount as their corresponding indices. The dollar rose 0.7%, hitting a fresh 20-year high. Meanwhile, the 10-year U.S. Treasury Note fell nearly 0.3% to 3.56, but stayed above highs reached in June. Bond prices move inversely to yields. 

Some markets are going to be more affected by the Fed’s move than others, Deborah Fuhr, founder and managing partner of research firm ETFGI, told ETF.com, pointing to potential benefits to financials, brokerage firms, retailers and trading from more volatility and increasing rates. On the other hand, housing and real estate markets may continue to deteriorate, she said.    

“It's hard for many central banks to get the timing right in terms of when to stop raising rates and when to start,” Fuhr added. “The fear is that it may not be the best time to continue, especially if a few more rate rises after this one.” 

If it falls in line with analyst expectations, the upcoming 75 basis point rate hike will mark the third straight increase of that size. The central bank’s current target range stands between 2 and 2.5%.  

Analyst polled by CNBC believe the Federal Reserve could keep up the rate hikes until they peak at about 4.3% in March 2023.  

Source: September CNBC Fed Survey 

And while most anticipate a 75 bps hike to be announced later today, others are advocating for a 1.5% increase today.  

On an appearance with CNBC’s Fast Money yesterday, Head of Macro Strategy at Wells Fargo Securities, Mike Schumacher, advocated for a 150 basis point hike later today.  

“Why not just rip off the Band-Aid. Let’s get there in one day. But of course, the Fed won’t do that,” Schumacher said.  

Contact Shubham Saharan at [email protected]