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Federal Reserve: 1 Thing All Investors Need to Know Before July 29
Key Points
The Fed will decide whether or not to change the federal funds rate later this week.
In fact, Wednesday's call is coming at a particularly complicated time for investors.
For most long-term investors, not worrying about it either way is arguably the best option.
Investors usually watch closely for potential changes to the Federal Reserve's federal funds rate because such changes can move markets. And that's certainly the case for the decision due on Wednesday, July 29. The Fed could curb high inflation by raising interest rates. But a rate hike could also wreck the already fragile U.S. economy.
When it's unclear what the Federal Reserve's Open Market Committee (FOMC) should do, the better choice is usually to do nothing rather than introduce a change that might upset the status quo. If nothing else, leaving things alone allows all of the economy's moving parts to continue finding the optimal way of functioning given the current backdrop.
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And that's what most traders are counting on this time around. According to commodities and futures exchange CME Group, the fed funds futures market is betting there's a 64% chance the FOMC will leave the fed funds rate at its current targeted range of 3.5% to 3.75%; there's only a 36% chance it will be raised to a target range of between 3.75% and 4%. Although doing nothing allows inflation to linger at uncomfortably high levels for at least a little while longer, standing pat is also less disruptive, which is arguably what the domestic economy needs more right now.
Image source: Getty Images.
If you're a true buy-and-hold investor, of course, none of this interest rate drama really matters in the long run.
Sure, that's not the messaging you're getting from most of the financial media. All the noisy analysis suggests interest rate decisions require you to take action within your portfolio, before and/or after the decision is made. That's just not the case, though. Stocks worth owning for the long haul are worth owning against any interest rate backdrop, as their underlying companies' management understands how to navigate all economic environments.
In other words, don't sweat Wednesday's interest rate decision too much. It might briefly bump the market around. But the noise fades pretty quickly once more important factors return to investors' long-term radar.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.