Wall Street's Wild January Shouldn't Discourage the Fed, Says Analyst

By GKFX Team  |  28/01/2016 11:25

The Federal Reserve shouldn't let the recent spate of volatility throw a wrench into its plans to make additional rate hikes this year, according to one analyst, who hopes to see a staying-the-course sentiment reflected in its January statement, due out Wednesday at 2 p.m.

"What the market wants to see is the Fed sticks to its guns and sticks to the plan it has in place to move these rates higher," said James Hughes, chief market analyst at GKFX, based in London. "However, the market volatility that we're seeing at the moment and the big swings in China and oil prices -- these are the very reasons that the Fed didn't raise in September when we all expected them to, so it'll be interesting to see what they [think] this is going to do to the policy going forward."

Wednesday's statement will be the first since the FOMC hiked the short-term fed funds rate by 25 basis points - its first increase in almost a decade. At that time, Fed officials said they expected there would be roughly four rate hikes in 2016, which they forecast would boost the fed funds rate to 1.375% by the end of the year.

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The Fed, however, didn't expect markets would be turned upside down just weeks after their historic move. The S&P 500 is down 7% so far this year, a decline largely attributed to worries about slower growth in of China and fears of an oil glut that pushed crude prices down 19 percent during the same time period.

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Amid this sea of red on Wall Street, investors will also be looking for clues about what might occurs during the central bank's next meeting, to be held in March. Investors are pricing in a 36% chance of a rate hike out of that gathering, compared to just a 12% chance that such an announcement will be made in Wednesday's statement.

"I don't think [the Fed] will reference March - [Fed Chair] Janet Yellen doesn't necessarily like to do that, so I think it will be a guessing game," Hughes added.

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