What is the Fed Going to Do?

The U.S. Federal Reserve will be announcing their next decision on interest rates mid-December. While the prevailing opinion has been that they will raise rates by about 0.25 percent, this is purely an educated guess. As such, it is important to know how to trade your assets of choice in any circumstance that may be created.

Going with the current popular opinion, let’s first assume that the Fed raises rates at the conclusion of their meeting on December 14th. If this is the case, the demand for the U.S. dollar will instantly increase, causing the USD to perform strongly against other major currencies. In many instances, we are already seeing this happen—especially against emerging market currencies and secondary currencies. Most binary options brokers do not carry these currencies, and many Forex brokers avoid them, too. However, the boost that the USD has seen in these areas has not yet translated into the three other major currencies: the Japanese yen, the euro, and the British pound sterling. A Fed rate hike would almost certainly boost the USD against these currencies.

When it comes to the stock market, a rate hike would drive down indices. We saw this happen last December. It wasn’t until about April that markets had completely recovered from a rate hike. There were other factors involved here, but this is the most recent example that we have to draw from.

If rate hikes were to remain unchanged, it is a lot harder to know what will happen. The psychological impact is the first thing that needs to be looked at. If the Fed were to leave rates alone, we should expect the opposite to occur. The stock market would go up and the U.S. dollar would decline. However, although this is the natural reaction, because it is more psychological in nature than the last impact of a rate hike would be (one is a response to an event, one is a response to nothing changing), then we can safely assume that the impact would not be a lasting one. Traders of all sorts should look for the reaction to be an overreaction. Prices will move, but they will move back in the direction that they had come from, barring nothing else occurs.

Binary options traders especially have a huge opportunity here. Any time a market inefficiency occurs, a correction will inevitably occur, and these usually happen quickly. This makes binary trades, especially ultra short term trades far more effective than they usually are. By looking at perceived inefficiencies on a fundamental level and then using technical indicators to time trades more precisely, creating quick profits becomes much easier than usual. It’s certainly not foolproof, but the odds are far better than normal for you when typically trading 60 second binary options. Even five minute trades become more lucrative.

And if you are wondering how Trump’s Presidential victory impacts the Fed’s decision, just know that it adds even more uncertainty to the mix. With a President Clinton, people knew what they were getting as far as economic policy went. With President Trump, there are a lot of questions still hanging in the air. While the election should have zero impact on the Fed, it is impossible for the Federal Open Market Committee to ignore that Trump’s election has created uncertainty and volatility all over the world. This volatility needs to be accounted for if it is going to impact the U.S. dollar, and like it or not, this tilts the odds ever so slightly back toward the Fed holding off on raising rates yet again—at least from this point of consideration.