Will the Fed Raise Rates Next Wednesday?

Next week, the Fed is scheduled to make an announcement that’ll have a big impact on your investments and mine. On Wednesday, December 14, the Federal Open Market Committee (FOMC) will reveal whether it’s time for an interest rate hike. This is shaping up to be a market-moving announcement, so in today’s blog I’ll offer my predictions for what’s going to happen next Wednesday.

To make a long story short, I expect that the Fed will raise rates. However, I’m betting that it will be a small 0.25% increase, which would put the fed funds rate between 0.50% and 0.75%.

The latest data suggest that the U.S. economy is improving modestly—it rose 2.3% in the third quarter on stronger consumer spending, corporate profits and exports. Consumer confidence is now at the highest level in nine years, and the unemployment rate is at a nine year low.

You can bet that the “data dependent” Fed has taken notice of all of this. Plus, the Fed will likely cite recent inflation trends as a preemptive reason to raise key interest rates.

We also need to consider existing market rates. While the Fed does not like to cite market interest rates, it is another reason the FOMC will likely raise key interest rates. In the event of a rate hike, the Fed would be merely raising its key interest rate to get more in line with existing market rate.

And even with a rate hike this month, interest rates still remain ultralow—and income investors will continue to seek out higher yielding stocks.

However, some income-oriented stocks have grown more volatile since the Presidential election. That’s because during that time the 10-year Treasury bond yield has soared from 1.78% to 2.4%. This is concerning for dividend and interest rate sensitive stocks, as they can grow more volatile in this environment.

So, if you have any high yield stocks in your portfolio, I recommend that you do two things. First, run the stock through Portfolio Grader to get a sense of its overall fundamental health. Second, run the stock through Dividend Grader to see how it stacks up as a dividend stock.

Take note of the different grades—if the stock scores well in one screener, but not the other, it could still be worth holding. However, if it fails in both Portfolio Grader and Dividend Grader, you may want to consider selling the stock into near-term strength, especially before next Wednesday.

In any event, I’ll be in touch with you as soon as the news breaks next Wednesday in this daily blog.

Sincerely,

Louis Navellier

Louis Navellier

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