This article was originally published on ETFTrends.com.
With the unemployment rate at a low 3.8%, rising wages and a healthy inflation level, the markets are poised for another rate hike by the Federal Reserve. The federal funds rate is currently in the range of 1.5% to 1.75%, but an increase of a quarter of a percentage point is expected, but not guaranteed.
On Wednesday, the Federal Reserve will release the most recent economic forecasts, which could hint at additional hikes. However, the general consensus on Wall Street doesn’t think this will be the case.
"We finally have an economy that is running 'hot,' the culmination of a long recovery, plenty of global liquidity and stimulative fiscal policy. The challenge will be actually achieving a soft landing given the mounting risks due to trade tensions and accumulated global debt levels," said KMPG Chief Economist Constance Hunter.
Related: Bond or Bond Fund?
"Following the June hike, we continue to expect only one additional hike this year before the Fed pauses at its December meeting," said Ellen Zentner, a Morgan Stanley economist, told CNN.
Trade Tensions & Interest Rates
Once Federal Reserve Chairman Jerome Powell holds a news conference Wednesday following the interest rate decision, he is expected to answer questions regarding escalating trade tensions. U.S. President Donald Trump disavowed a joint statement at the recent Group of 7 meeting in Canada this past weekend.
In addition, an onslaught of tweets were directed at Canadian Prime Minister Justin Trudeau.
"Based on Justin's false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!,” said President Trump in a tweet.
President Trump’s administration has already imposed steel and aluminum tariffs on the European Union, Mexico and Canada—a move that could have implications, such as hampering global economic growth.
Bond ETFs Reacting
With the expectation that interest rate hikes are in store, traders are targeting bond funds for bearish plays on the market in the short term. As for the long term, Paul Tudor Jones, a hedge fund manager who accurately predicted the stock market crash of 1987, sees bond yields and stock prices increasing near the end of 2018.
“I think you’ll see rates go up and stocks go up in tandem at the end of the year,” said Jones. “I think we’ll see rates move significantly higher beginning some time late third quarter, early fourth quarter.”
As of 2 p.m. Eastern Time, certain bond ETFs are mixed as the iShares Core U.S. Aggregate Bond ETF (AGG) is up .01%, Vanguard Total Bond Market ETF (BND) is down 0.01%, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is up slightly at 0.05%, and iShares TIPS Bond ETF (TIP) is down 0.02%.
For more bond-related news, check out the Fixed Income Channel.
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