The Federal Open Market Committee’s September decision to keep rates unchanged at 0% to 0.25% was a surprise for most market speculators as many believed a change was likely for September. However, while the Fed did not raise rates in September; its September projections, released following the meeting, indicate that a rate hike is likely before the end of the year.
In a new line item included with its September economic projections, the Fed indicates the median level for the federal funds target rate in 2015 is 0.4%, down from 0.6% in June. Furthermore, the projections show that 13 participants see a rate hike in 2015.
U.S. market indexes opened higher on Monday as the market gained greater insight into the Federal Reserve’s interest rate increase timing. The Dow Jones Industrial Average opened 0.62% higher in early market trading led by Nike (NKE, Financial) up 1.21%.
While the Fed did not raise rates at its September meeting, its projections and comments did provide greater transparency for the U.S. market. Now, given the Fed’s September stance, it appears a rate hike is nearly inevitable for 2015, although the pace of subsequent increases will likely be slower and more gradual. The postponed rate hike in September and more gradual pace of rate increases on the horizon could tame market volatility, but it also means that prices will likely settle at a lower level given the changed outlook.
In a Monday morning discussion on Fox News, market experts discussed the likelihood of a 2015 rate increase and noted some trading strategies for investors in the current market environment.
