Forget Tariffs, the Feds are Coming

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President Donald Trump signs a proclamation on steel imports during an event in the Roosevelt Room of the White House in Washington, Thursday, March 8, 2018. He also signed one for aluminum. (AP Photo/Susan Walsh)

Over the past couple of weeks, the global stock markets have been volatile amid fears of a trade war. The United States looks ready to brawl over tariffs, and the world is preparing to fight back. However, a potential trade war isn’t the only thing investors will have their eyes on this week.

The Federal Reserve is poised to take back the spotlight during a two-day meeting that will conclude on Wednesday. It’s widely speculated that the new Fed Chairman, Jerome Powell, will use this policy meeting to deliver the first rate increase of 2018.

While investors are prepared to see quarter-percentage increase on rates, they will be tuning in to see how quickly the Federal Reserve plans to raise rates to keep up with inflation. It’s well-known that Powell is trying to avoid causing any commotion in an already volatile market, but raises rates are necessary in the current economy.

The Republican tax cut combined with a big bipartisan spending budget puts the United States’ robust labor market at risk of overheating if rates aren’t addressed properly. Powell has made a clear indication that he plans on increasing rates at a steady pace rather than sparking a recession through raising rates too rapidly.

With that idea in mind, it’s possible the Fed will take a more aggressive stance than expected in order to stay ahead of the rapidly increasing inflation curve. The US stock market is currently accustomed to low rates, and any surprises could trigger a plummet as the market battles strong resistance levels throughout the week.

Currently the futures market is gearing for three rate increases throughout the year, and there’s about a one in three chance that rates will increase four times. All signs point to a growing economy after a strong factory order and jobs report, which means the market will likely respond well to the expected raises.

The stock market is stabilizing well after a poor February, and Wednesday will be a key test to determine the market’s stability. If the Feds are a little more aggressive than expected and new tariffs are announced, the stock market might find itself bouncing off key resistance levels during the second half of the week. However, the initial outlook is positive heading into Powell’s first meeting as chairman.

 

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