The U.S. Federal Reserve wraps up its two-day FOMC meeting today at 2 p.m. with its statement. There is no conference following today's meeting, so every word in the statement will be dissected extremely closely.
Here's what investors need to know about the July FOMC meeting and what is next for markets.
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The overwhelming consensus from economists is that the Fed will leave its monetary policy unchanged following the FOMC meeting today. There is virtually no chance the Fed will announce an interest rate hike today.
JPMorgan economist Michael Feroli told clients this week that they should expect a "sleepy event." He did however say the Fed's announcement should reflect an updated look at domestic economic data.
A number of economists believe the Fed will hold off raising interest rates until Q1 or Q2 of 2017. That's mostly due to the uncertainty surrounding the UK's June 23 decision to leave the European Union. The upcoming U.S. presidential election could also rattle markets.
Before Brexit, the consensus among traders was that the Fed would raise interest rates at least once in 2016, according to Bloomberg data. Since Brexit, the odds of a rate hike this year have dramatically fallen. In fact, the probability of a rate cut is larger than a rate increase.
According the CME FedWatch tool, traders are placing a 1.2% chance that the Fed raises rates following today's FOMC meeting. The odds for a rate hike in September are 25.2% and 26.3% in November.
For December, the odds are 48%. But the Fed's last interest rate hike in December 2015 resulted in a major pullback for stocks. In fact, the Dow fell more than 10% in the first six weeks of 2016 following the Fed rate hike.
While the FOMC meeting today is widely expected to end with no action, what the Fed says is the biggest key for investors to watch...
FOMC Meeting: Watch the Fed's Tone Very Closely
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Keep an eye on how the Fed describes the health of the U.S. economy. Better than expected manufacturing and consumer data, as well as a very strong June jobs report, could create a hawkish tone from the Fed.
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The unemployment rate rests at 4.9%, a level many deem full employment. Yet the current annual government-reported inflation rate is around 1%, a full percentage point under the Fed's ideal 2% target. With inflation low, the Fed will be in no rush to raise interest rates.
Investors should also watch what the Fed says about the global economic landscape and the impact on market volatility.
The Fed has continually cited turbulent financial market conditions as a reason for not lifting rates in 2016. Global markets have calmed down since Brexit. Markets have also have shrugged off a number of terrorist attacks that in the past would have been market-moving events.
With economic data solid and financial markets settled, the Fed might surprise markets by signaling that an interest rate hike is still on the table for later this year. That will cause near-term volatility following the FOMC meeting today.
Check back with Money Morning for frequent updates regarding the FOMC meetings in 2016.
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