Dow Jones Declines As Investors Brace For Fed Decision

The Federal Reserve has been in the midst of quite a few investment discussions; and for good reason. For the past 6 years, we've been living in times of 0% interest rates. That's unheard of, but good for investors. However, since late 2014, the Federal Reserve has been saying that they intend on increasing interest rates in the year 2015. Well, 2015 is almost over and we haven't seen a rate hike quite yet. Nonetheless, the Federal Reserve will be meeting September 15th and 16thto discuss rates once again. This time, many believe that the result will be a hike before the end of the month. Today, we'll talk about how the discussion is affecting activity in the market, the pros and cons the Fed will need to weigh in their discussions, and what we can expect to see in either case.

How The Possible Rate Hike Is Affecting Market Activity

On Monday, markets were down as investors braced for the impact of higher interest rates. That's because if the Federal Reserve does increase interest rates, the market is in for even more declines. The reality is that low interest rates put more money back into the pockets of consumers. Therefore, consumers are able to spend more; boosting up corporations and leading to higher stock values. However, if a rate hike does happen, investors will have less money to spend; which could lead to lower sales volume for many publicly traded companies and ultimately bring the value of stocks down. So, what we saw in the market on Friday is a direct reaction to the idea that the Fed may actually raise rates before September ends. With that said, here's how the market reacted on Monday…

• Dow Jones Industrial Average – The Dow Jones Industrial Average closed at 16,370.96 after falling 0.38% Monday.
• S&P 500 – The S&P 500 closed at 1,953.03 after falling 0.41% on Monday.
• NASDAQ – Finally, the NASDAQ closed at 4,805.76 after falling 0.34% so far today.

What The Federal Reserve Will Need To Discuss

The Federal Reserve has quite a bit to discuss with regard to whether or not they plan to raise rates. The discussions are likely to be broken into two categories; domestic economy and economies abroad. Here's what I see as main points on each side…

• Domestic – Here in the United States, the biggest discussions will likely revolve around the US Jobs Report, consumer spending, and exports. Unfortunately, none of these figures seem to be overwhelmingly positive. While US jobs were picking up relatively well, jobs slumped in August creating concerns. Exports are still hurting as a result of the strong US dollar and has seen relatively little movement into the positive direction.
• Abroad – While we may not think about it on a daily basis, what we do here in the United States has a strong affect on the world economy as a whole. So, the Federal Reserve will have to take the world economy into account when making their decision. The problem here is that the world economy is struggling. We've all heard about struggles in China and the Eurozone. Not to mention there are several other economies that are currently feeling pain.

Keeping these factors in mind, it doesn't seem to me like a rate hike would be a good idea. However, history tells us that the Federal Reserve doesn't always make good decisions! With that said, they may still decide to hike rates.

What Would Happen In Either Case

As a binary options trader, what matters to you most is market activity. While the rate discussion is important on the economic side of things, it's also very important to the United States market. With that said, here's what I see happening in the case that rates are raised and in the case that rates stay low…

• If Rates Go Up – If the Federal Reserve does decide to raise the interest rate, consumers are going to be spending more money on interest. This means that they won't be spending as much money in the open market; which could cause pain for US corporations and therefore will cause pain for the US market. So, if rates go up, get ready to play your put options for profits!
• If Rates Stay The Same – If the Federal Reserve decides to keep the historically low interest rate active, investors are likely to breath a sigh of relief before dumping more money into the market to take advantage of growth. So, if rates stay the same, get ready to ride call options up to profits!

What Do You Think?

Do you think the Fed is going to raise rates or keep them the same? Let us know in the comments below!