FOMC Meeting: What You Need to Know for September 2017
Wall Street "pundits" are watching the September FOMC meeting to see if there will be an interest rate hike, but there's a much more important issue the Fed will tackle…
More important will be any details the Fed reveals about its staggering $4.5 trillion balance sheet. According to the CME FedWatch Tool, there's a 98.6% probability the Fed will keep interest rates the same at the September meeting, with only a 1.4% chance of higher rates. That makes the interest rate hike almost an afterthought.
During the Fed's July meeting, the central bank said it will begin unwinding its $4.5 trillion balance sheet "relatively soon." Few other details are known, so any details revealed at the September meeting will be extremely important.
Here's how the Fed will act on interest rates at the September FOMC meeting and how the Fed's unwinding of its balance sheet will impact your wallet…
Will the Fed Raise Rates at the September FOMC Meeting?
Fed watchers aren't expecting a rate hike in September, but we do expect one more this year.
During the December 2016 FOMC meeting, Fed officials predicted three rate hikes in 2017. The Fed already raised interest rates in March and May, which means one more rate hike should be coming this year. There is currently a 35.8% probability of a rate hike during the December meeting, according to the FedWatch Tool.
Urgent: More than 50% of Americans age 35 to 54 have less than $10,000 saved for retirement. If that’s you – or if you’re still not on track to retire by 60 – you can’t afford to miss this brand-new report. Get it here now.
The less than 50% probability is low considering the Fed's own forecast of three rate hikes this year. But Fed Chair Janet Yellen said she is looking for inflation to rise to 2% before raising rates. The current inflation rate – at least the one the Fed looks at – is just 1.73% on the year.
With two more meetings scheduled after this one, the FOMC will have time to see if inflation rises enough to support another rate hike this year.
The 2017 FOMC Meeting Schedule
There are three more FOMC meetings scheduled for 2017. These are the Fed meeting dates, including the current FedWatch Tool probabilities for an interest rate hike:
- Sept. 20, 2017 (0%)
- Nov. 1, 2017 (3.8%)
- Dec. 13, 2017 (35.8%)
But traders can't ignore the September meeting, or any this year, just because a rate hike isn't likely. Potential clues about the Fed's balance sheet could affect the stock market…
Why Unwinding the Fed Balance Sheet Matters to You
The Fed spent trillions of dollars to help stimulate the economy between 2008 and 2015, and some analysts worry pulling the money back out will slow the economy.
Starting in 2008, the Fed began buying up assets in an effort to combat the 2008 recession by injecting money into the economy. The Fed spent over $3.5 trillion between 2008 and 2015, buying everything from toxic mortgage-backed securities to Treasury notes.
Money Morning Chief Investment Strategist Keith Fitz-Gerald has found that a staggering 93% of all market moves between 2008 and 2016 can be attributed to the Fed.
Since the Fed bought these assets to stimulate the economy, it needs to sell them back – or unwind its balance sheet – now that the economy is growing again. If it doesn't, the Fed won't be able to respond to future downturns the same way.
Even though the Fed needs to sell off these assets, unwinding the balance sheet means pulling money out of the economy. Analysts are concerned the Fed's spending spree helped boost stock prices during the bull market beginning in 2009, and without that money the market could pullback.
This is the "biggest risk" to the economy right now, according to Michael Vogelzang, president of Boston Advisors.
But investors who sell their stocks because of the Fed could be making a mistake.
That's why Keith isn't worried by the Fed's balance sheet or rate hikes.
"Millions of investors mistakenly believe that rate hikes spell the death of equities," Keith said back in June 2016, just after the Fed's first interest rate hike since slashing rates in 2008.
And Keith was right.
The Dow is up 22% since then, and the Fed has raised rates two more times since then too.
While the Fed unwinding its balance sheet could be more destabilizing than the Fed raising interest rates, Keith isn't expecting it to hurt the stock market.
"If the Fed sticks to the snail's pace normalization it's followed so far, then the markets can absorb the garbage dump," Keith told FOX Business Network's Neil Cavuto.
Keith says he would only be concerned if the Fed proposed a gimmicky strategy to get rid of its assets, like bundling junk mortgages with Aaa bonds.
Either way, investors are better off staying in the stock market for the long haul. Trying to time the market's dips and surges is nearly impossible, and it's more likely you'll miss out on long-term gains that way.
"Bottom line: Stay in to win," says Keith.
What Higher Interest Rates Mean for Your Money
Higher interest rates mean borrowing money becomes more expensive, and they can lead to lower stock prices.
Higher interest rates could lead to stock prices dropping because businesses will see their borrowing costs rise. This might lead them to borrow less money, which could lead to slower growth.
Rising interest rates also make bonds more attractive investments because they pay higher yields. Rising bond yields could lead to investors moving their money out of the stock market and into bonds. That means share prices could fall as money leaves stocks.
But we don't recommend following what everyone else does.
Like Keith says, staying in the stock market is the only way to see long-term growth. In fact, history shows us that stocks will always rise.
But there are two other ways higher interest rates can affect your money…
First, higher interest rates strengthen the value of the dollar.
A stronger dollar means your money will go farther internationally. Imports will become cheaper as the dollar strengthens – each dollar will be able to buy more – and travelling abroad will also be cheaper.
Since oil is traded in dollars, a rising dollar will lead to cheaper oil prices too.
But a strong dollar could have negative side-effects for some investments.
Precious metals, like gold and silver, will likely see their prices fall when interest rates climb. As the dollar strengthens, international buyers will have to pay more money to own these metals. The more expensive costs will drive down demand.
Breaking: Executive Editor Bill Patalon just saw something on his precious metals charts he’s only seen twice in 20 years. He calls it the “Halley’s Comet of investing” – and it could lead to windfall profits. Details Here…
And as bond yields rise, gold and silver owners might move to bonds as a safe-haven investment instead, since they'll be getting a higher rate of return.
Second, rising interest rates will lead to higher borrowing costs for most Americans and businesses.
Car loans, new mortgages, and credit card debt will come with higher interest rates.
For example, the average car loan interest rate is currently 4%, but before the 2008 financial crisis, car loans came with an average interest rate of 8%.
Similarly, if you have a variable rate mortgage or a balance on a credit card, your monthly payments will go up after the Fed hikes rates again. You can avoid paying more by refinancing to a fixed-rate mortgage before the Fed raises rates or paying off your credit card balance.
But higher interest rates will also help too.
Interest-paying savings accounts will pay more after a Fed rate hike. Currently, the average savings account pays a 0.06% yield. But before the Fed slashed rates in 2008, savings accounts paying over 5% yields were still available.
How to Invest as Interest Rates Rise
Owning resilient stocks in well-managed companies is our favorite way to profit, especially when the market gets volatile.
The trick to making huge profits is to find "must-have" companies that fall into what Keith Fitz-Gerald calls the six "Unstoppable Trends": medicine, technology, demographics, scarcity/allocation, energy, and war, terrorism and ugliness (also known as defense). The Unstoppable Trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack.
And Keith has two Unstoppable Trend stocks that will help you profit even if the Fed makes a decision that hurts the stock market. Just look at how these stocks performed when the dot-com bubble burst in 2000, crashing the stock market…
First, Becton Dickinson and Co. (NYSE: BDX) is a medical device manufacturer and a leader in the Unstoppable Trend of demographics.
As the population gets older, more people will need medical care, especially long-term care. There's simply no way of getting around it: People will age, and they will need medical care as they do. That's what makes this an Unstoppable Trend.
And BDX is the perfect play because it's a leading manufacturer of one-time use medical supplies like syringes and hypodermic needles. Not only do hospitals, physicians, and long-term care facilities constantly need to buy these essential supplies, they'll need even more of them as the population ages.
Becton Dickinson is also a well-run company. It knows how to turn sales into profits, which means an even bigger boost for shareholders as its sales figures rise.
Becton Dickinson currently maintains an above industry average profit margin of 10.54%, and the company had enough cash on hand to spend $12.2 billion to buy CareFusion two years ago.
That's how BDX can maintain its healthy 1.5% dividend yield and growing share price.
BDX trades at $198.42 and is up 19.92% on the year. Wall Street analysts set one-year price targets for BDX as high as $230, a 16% jump.
Raytheon Co. (NYSE: RTN) is a leader in the Unstoppable Trend of war, terrorism, and ugliness.
Raytheon is one of the five largest defense contractors in the United States, with billions in contracts with the U.S. government and governments across the globe. In fact, international customers make up half of Raytheon's portfolio. That means Raytheon's customer portfolio is diversified, and changes in one country's security are balanced by the rest of the portfolio.
But Raytheon's services will always be in demand. Governments, and even businesses, always need security and protection. Between a potential conflict with North Korea, China and India's border dispute, a surge of U.S. troops in Afghanistan, and the growing threat of cyberterrorism, Raytheon is staying busy.
And just look at how global tensions affect RTN stock. When the United States launched Raytheon's Tomahawk missiles at a Syrian airbase on April 7, Raytheon's stock jumped more than 2%.
But Raytheon is addressing future threats too. Its cybersecurity and intelligence unit is worth $6.2 billion on its own, especially after its 2016 takeover of Forcepoint, a cybersecurity firm.
RTN currently trades at $178.61 a share and pays a 1.79% dividend yield. RTN is up 25.77% this year, and Wall Street analysts are giving it one-year price targets as high as $212, which could bring shareholders a potential 19% gain.
"Must-have" stocks like Becton Dickinson and Raytheon offer a great way to profit even when markets are volatile. But Keith has been researching even more aggressive income potential, too. He’s found a special class of investments he calls “26(f) programs” that give investors the opportunity to tap into huge monthly income – $2,000… $5,000… or more – every month for the rest of their lives. Click here to learn how it works…