Investing in S&P/ASX 200 Index (ASX: XJO) shares?
Then you're probably as keen as I am to know what the US Federal Reserve is going to announce on interest rates.
The US may be on the opposite side of the world.
But the rate decisions made by the Fed have a major impact on global stocks, including ASX 200 shares.
Should the Federal Open Market Committee (FOMC) opt to raise rates by more than market expectations, share markets will most likely fall.
On the flip side, if the Fed is more dovish than markets have priced in, stocks are likely to broadly rally.
So, what can ASX 200 share investors expect?
ASX 200 shares and the US Fed
Fed chair Jerome Powell will make the much-awaited announcement on Wednesday US time.
That means, unless you're a night owl, here in Australia we'll know when we wake up on Thursday. And at market open tomorrow, ASX 200 shares will react to the news.
Before the banking crisis erupted with the collapse of Silicon Valley Bank, analysts were largely expecting a 0.50% interest rate hike from the Fed to combat ongoing high inflation.
Today, almost no one is calling for a 0.50% hike.
According to data from Bloomberg, the market is now pricing in around 80% odds that Powell will announce a 0.25% hike. That will bring the official US interest rate to 5.0%, its highest level in 16 years.
But uncertainty is high.
Among the Wall Street banks, six of eight are expecting a 0.25% hike. Two – Goldman Sachs and Wells Fargo – expect the Fed to pause its tightening path following the past weeks' retail banking woes.
All told 11 of 98 economists in the Bloomberg survey believe the Fed will pause, 86 expect an increase, and one is pencilling in a 0.25% rate cut. Should that cut eventuate, ASX 200 shares will most likely enjoy a very strong day tomorrow.
What the experts are saying
"This tension is leading to existential angst. Have they gone too far, or not far enough? Both could be true at the same time," Derek Tang, an economist at LH Meyer/Monetary Policy Analytics said.
"The difficult thing for the FOMC at this meeting will be the tension between bringing down inflation and financial stability risks," Jonathan Millar, an economist at Barclays added.
And according to Anna Wong, chief US economist at Bloomberg Economics:
There are no easy options. A pause could signal that the Fed is not confident in the resiliency of the banking system or the economy, or sees problems that aren't yet visible to the market. On the other hand, a hike could add to bank stress and spook investors.
I don't know about you, but I certainly don't envy Powell at the moment. He might want to consider wearing a 'Don't shoot the messenger' T-shirt.
As for ASX 200 shares, the odds are strong that we'll wake up to another 0.25% rate hike from the Fed.
