Fed meeting: Bracing for the known unkowns

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The Federal Reserve set to release the decisions from its two-day October meeting on Wednesday, which will confirm the end of its quantitative easing programme and a decision on a possible rise of interest rates.

Considering the recent weak economic data from Europe and Asia, investors discuss possible repercussions on global markets.

Eric Lascelles, chief economist at RBC Global Asset Management said: “given the exaggerated extent to which markets have priced out rate hikes in the aftermath of the stock market correction and declining oil prices, a reiteration of earlier Fed messages might nevertheless manage to jolt bond yields higher.”

“At this juncture it looks unlikely that the “considerable time” statement will be abandoned, especially given Vice-Chair Fischer’s assessment that “considerable” could mean anywhere between a paltry 2 months and a meaty 12 months, “ he adds.

Andrew Wheatley-Hubbard, co-manager of the BlackRock Global Income fund argues: “The prospect of rate hikes has created fear for the future returns to dividend-paying stocks, but identifying the type of “income stocks” is vital. Some dividend stocks, paying high yields but offering no growth, are “bond proxies” and as such their value will fall as rates rise, similar to bond markets.”

“Historic analysis shows that moderate rate rises are good for broad equity valuations, and so we do not need to fear this. The different pace and timing of policy from the Fed and the ECB naturally opens opportunities in the global equity markets” he concludes.

Mona Dohle
Mona Dohle speaks German and Dutch, she is DACH & Benelux Correspondent for InvestmentEurope. Prior to that, she worked as a journalist in Egypt and Palestine. She started her career as a journalist working for a local German newspaper. Mona graduated with an MSc in Development Studies from SOAS and has completed the CISI Certificate in International Wealth and Investment Management.

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