Here's why investors shouldn't 'fear the Fed' this week

The Federal Reserve is set to convene this week for a two-day meeting that is unlikely to produce a shift in the central bank's posture on monetary policy.

For this reason, some strategists say investors ought not to worry about the Fed hitting stocks at this juncture even as it is in the midst of a tightening cycle.

"We believe that the announcement that comes out will be rather benign; it will be what the market is anticipating," Chad Morganlander, portfolio manager at Washington Crossing Advisors, said Monday on CNBC's "Trading Nation."

"I think 'don't fear the Fed' is true for the next several months, but keep in mind that the Fed will be raising rates, overall, over the next 18 months," he said.

Morganlander expects three further interest rate hikes, by 0.25 percent each, as well as the beginning of a balance sheet reduction. This could all elevate volatility as well as "financial stress," he said, and investors should be "balanced" in their investment strategy, particularly when it comes to investing in bonds.

And equity investors ought to keep in mind that valuations are somewhat stretched, so a cautious approach would be best over the next six months, he added.

The central bank's meeting, set for this Tuesday and Wednesday, will not be "live" in the sense that "anyone expects a change in the policy of any kind," wrote currency strategists at Brown Brothers Harriman on Monday in a note to clients.

"For reasons beyond our ken, the Federal Reserve insists on making changes only at the half of the FOMC meetings which are followed by a press conference. There are several workarounds including, as we have suggested, such as holding press conferences after every meeting, which the ECB and BOJ already do, for example," the strategists, led by Marc Chandler, global head of currency strategy, wrote.

Even still, investors may be worried about what may come of future policy shifts from the Fed. In this month's Bank of America Merrill Lynch global fund manager survey, strategists found that one of investors' biggest concerns is a policy "mistake" from the Fed or the European Central Bank.


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Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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