Could a hike make markets spike?

Indices rally regardless of oil weakness, but can they continue to do so faced with a hike? The FOMC commentary is going to be key to ongoing expectations.

Federal Reserve building
Source: Bloomberg

Today has finally seen indices detach from oil prices, as the FTSE rallied in the face of tumbling crude valuations. Despite the release of numerous headline figures from Europe, traders are entirely focused upon events in Washington which will no doubt set the direction of markets for weeks to come.

The time for talking is over at the Fed, as the committee prepare to raise rates for the first time in nine years. With futures pointing towards an 80% chance that we will see rates rise by 25 basis points, it will come as no surprise should the Fed finally act. Given market expectations of a rate hike at the top-end of the likely reality, there seems to be a good chance the Fed will under-hike, causing a relief rally.

The commentary surrounding today’s announcement will be hugely important as this sets out expectations for future hikes. With a notorious dove at the helm, it is highly likely that Yellen will avoid needlessly spooking the markets and instead focus on the fact rates will rise at a relatively gradual and leisurely pace.

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