The last Federal Open Market Committee, or FOMC, meeting of 2018 will take place on December 19th.
For Fed Chair Powell, the case for tightening (raising rates) is fairly straightforward:
- The U.S. economy is in good shape
- Inflation remains steady
- We have a workforce that's at full employment
The wisdom backing a dovish approach (not raising rates) cites:
- Uncertainty around the ongoing trade rift between the U.S. and China
- A slumping housing market that's driven by rising mortgage rates
- The recent market volatility
Despite the arguments, the odds of a hike, according to the CME Fedwatch Tool, is now around 70 percent.
And historically, the month leading up to a December hike have been bullish periods.
Over the previous rate hike cycles since 1994, there have been 4 other December rate hikes; in the month before these episodes, the S&P 500 and Nasdaq gain about 2.8 percent each, with the Dow leading, adding over 3 percent – with all three indices trading positively 100 percent of the time in that period.