Start the conversation
After recent market volatility and a mix of U.S. economic data, investors have been asking us, "Will the Fed raise interest rates in November?"
According to Money Morning Technical Trading Specialist D.R. Barton, our readers shouldn't expect a rate hike during the November FOMC meeting.
"So the big question is, in the meeting coming up next week, on Nov. 2, will the Fed raise interest rates. Well, I can tell you with a good deal of high probability, the answer is no," Barton said on a Facebook Live event.
That's because the results of the 2016 presidential election could create volatility in the markets.
And the Fed doesn't want to increase volatility.
Barton believes there are two scenarios from the election that could cause a "Brexit-like market meltdown."
The first scenario is the Democrats have majority control through the White House, the Senate, and the House of Representatives.
"I think that will send the market into a drop," Barton said.
The second reason markets could be volatile after the election is Donald Trump winning the White House. But it's not just a Trump victory that could send the markets down.
It's a specific announcement from Trump that could hurt your portfolio.
Barton says that a Trump win with immediate rhetoric or discussion of tariffs that will be put in place against Mexico and China could trigger a market sell-off.
"If that happens, then people are seeing that negative trade impacts are happening right away or are likely to happen right away," Barton said.
Barton believes there is a very small chance of either event happening, but the markets could react negatively if either event happens.
That's why the Fed will most likely keep interest rates the same in November.
But the Fed will have another meeting on Dec. 13, which is when investors believe there will be the greatest chance for an interest rate hike in 2016.
And Barton has a key reason why the Fed may be forced to raise rates in December...
Will the Fed Raise Interest Rates in December?
According to the CME FedWatch Tool, there's a 73.3% chance the Fed raises interest rates in December.
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Most of the market predicts the Fed will raise interest rates to a target rate of 0.50 to 0.75 points.
But after waiting so long, why would the Fed decide to raise interest rates in December 2016?
Barton says there's an old Wall Street saying that it's okay to be wrong if you cut your losses quickly. He says what can't happen though, is that you end up "being wrong for too long."
And many economists feel the Fed has kept interest rates too low for too long.
You see, the Fed is now running out of ways to stimulate our economy. The United States already has a near-zero-interest-rate policy (ZIRP), so the Fed can't continue to cut rates much further.
Money Morning Capital Wave Strategist Shah Gilani said on Feb. 24 that the Fed's ZIRP and monetary easing policies have already inflated the stock market, undermined economic growth, juiced up banks' balance sheets, and forced other central banks to follow the Fed's crazy policies.
But if the Fed needs to cut interest rates even more, it could lead us to negative-interest-rate policy (NIRP), which is even more dangerous.
NIRP is supposed to stimulate an economy by forcing small banks to lend more money. But this policy doesn't appear to be working in countries who've adopted it, like Japan. In fact, it appears people who live in countries with negative rates are saving more money than spending.
But if the Fed does raise rates in December, they will be able to lower them once again if needed.
"By making an interest rate hike in December, then in 2017, they'll have a few extra levers to pull to be able to respond to some negative economic event," Barton said.
Still, if the Fed raises rates, there could be a short-term negative reaction.
For example, the Fed raised interest rates on Dec. 16, 2015, from a range of 0% to 0.25% to a range of 0.25% to 0.5%. The Dow opened at 17,530.85 on Dec. 16 and plummeted to 17,154.94 on Dec. 21.
That's a 2.1% drop in less than a week.
If that happens again, Money Morning wants our readers to be prepared.
In the video below, Barton offers three steps to take if the Fed does raise interest rates in December...