Here's how the Fed's decisions will begin impacting the market

The Federal Reserve's meeting minutes published Wednesday afternoon revealed the central bank is quite divided when it comes to future interest rate increases, and one portfolio manager laid out in a interview with CNBC's "Trading Nation" how the Fed's upcoming hikes may begin affecting markets.

"What the Federal Reserve is going to do with their balance sheet as well as with interest rates is going to be a key component to how much volatility there will be within the financial markets, the equity markets as well as the bond markets," Chad Morganlander, portfolio manager at Washington Crossing Advisors, said Wednesday afternoon.

"Investors should be careful of the equity exposure they have in their portfolios," he said, adding that they shouldn't "shy away" from the fixed income market, either.

Inflation remains a concern for Federal Reserve officials, as measures of inflation are currently running well below the central bank's current target. The Fed will raise rates in a "methodical" way, Morganlander said, and the degree to how aggressive rate increases should be has come into question.

"The reality is that they will be slow to raise interest rates over the course of the next 18 months; we're expecting another quarter of a point rate hike for 2017," Morganlander said.

The Fed may surprise the market with more rate hikes than it currently anticipates, said Larry McDonald, head of global macro strategy at ACG Analytics. This will in turn cause volatility to surge, he believes.

"We experienced a tremor last week, the bull has been wounded — a warning of things to come. We believe a new vol (volatility) regime is upon us — the VIX will touch 60 before we have pumpkins on our doorsteps," he wrote this week in a note to clients.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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