The consensus is that no matter what US Federal Reserve Chairman Jerome Powell tells the press today (overnight Aussie time), it will impact S&P/ASX 200 Index shares.
Rick Rieder is BlackRock's CIO for global fixed income. As quoted by CNBC, Rieder said:
I think the last press conference, I think I watched with one eye, and listened with one ear. This one I'm going to be tuned in to every word, and the markets are going to be tuned in to every word. If he says nothing, it will move markets. If he says a lot it will move markets.
As you may know, the Fed has been meeting behind closed doors for the past 2 days. Tomorrow morning – or tonight, if you're keen enough to tune in – ASX 200 investors will have a clearer picture of its intentions.
Why the Fed's announcement matters for ASX 200 shares
The United States and numerous other nation's economies are growing strongly as they begin to recover from the coronavirus pandemic – including Australia and economic powerhouse China.
The pressing questions then for ASX 200 shareholders are, how soon will the Fed begin to unwind its unprecedented monetary easing policies? How soon could the world's most-watched – and most imitated – central bank begin to ratchet up interest rates and scale back its quantitative easing (QE) program?
Currently, the Fed's official interest rate sits at 0.25%. And it buys US$80 billion of Treasuries and US$40 billion of mortgages every month. Yep, that's US$1.44 trillion (AU$1.87 trillion) every year.
But as the US economy is posting strong growth, bond yields have been ramping higher. As recently as 4 August, US 10-year Treasuries had a yield of 0.52%. Today that's up at 1.62%. And these long-term rates have a direct trickle-down effect on key loans, like mortgages.
As the Federal Open Market Committee members study the latest economic forecasts, they may adjust their expectations on winding down QE and ratcheting up interest rates.
When can ASX 200 investors expect the US Fed to raise interest rates?
While virtually no experts expect US rates to rise this year, some have flagged 2022, with more pointing to 2023.
According to CNBC, the last forecast showed "five of 17 members expected a rate hike in 2023, and just one forecast a hike in 2022".
Mark Cabana, head of US short-rate strategy at Bank of America, said:
We think they will sound a bit more optimistic but still cautious. That said, we think it will be hard for them to sound as dovish as they have been just because the facts on the ground are improving.
As a result of that, we think they're going to sound a little less accommodative than the market is expecting. We think they're likely to show a hike at the end of 2023.
How will rising rates in the US impact ASX 200 shares?
Like it or not, where the US goes, much of the world follows. Not only will higher interest rates from the Fed impact ASX 200 shares with business in America, but it's also likely the Reserve Bank of Australia and other central banks may follow in the Fed's footsteps.
ASX 200 growth shares could be the most impacted by Jerome Powell's speech.
Growth shares are those that can grow revenue and share price faster than the broader economy. They're also more vulnerable to any shocks, like rising interest rates.
The Afterpay Ltd (ASX: APT) share price, for example, is up 484% over the past 12 months.
Or Pointsbet Holdings Ltd (ASX: PBH), whose share price has soared 776% over the past full year.
That compares to a gain of 28% on the ASX 200.
Powell's speech on the Fed's expected timeline for raising rates and scaling back QE could impact the broader ASX 200, but it's the ASX 200 growth shares that may move the most.
