How Does the FED’s Interest Rate Decision Typically Affect the Stock Market and the Dollar?

The rate decision itself

The current market expectation is that the FED will hike the interest rate by 0.25%.  If it does not meet the market expectation, the dollar may tank, while the US stock market may rise.  On the contrary, if the Fed hikes more than the expectation, the dollar should soar while the stock market may not react well.

The interest rate and economic forecast

If somehow most of the FED members expect to increase rates a few more times this year, the dollar should be gaining ground against other currencies while the stocks may go lower.  Similarly, if the outlook for GDP growth and price pressure remain unchanged for the remaining of the 2017, this would be a negative for the dollar.

2:30 PM Janet Yellen’s press conference

Janet Yellen’s press conference will start at 2:30 pm Eastern Time.  Any explicit reference to increasing inflation or improving unemployment figures will be deemed as a hawkish stance.  The probability of the future rate hikes is increasing, and the dollar, therefore, needs to extend its gain.

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