6 Stocks To Gain With Fed Set To Keep Rates Unchanged

U.S. stocks surged above a four-month high on Feb 18 ahead of the Fed’s two-day meeting scheduled to begin later today. The central bank is widely expected to keep rate hikes on hold, which is a major factor bolstering investor sentiment. But market watchers also expect more details on its plans to end balance sheet reductions.

The Fed is also likely to unveil its latest “dot plot” which outlines its interest rate expectations for the year as well as the long run. Investors would love to witness only one rate hike taking place this year and the next.

In fact, Goldman Sachs (GS - Free Report) believes the Fed will let inflation run higher, allowing it to refrain from near-term rate hikes. Rate-sensitive stocks are likely to gain from such a dovish monetary stance. This is why it makes sense to invest in real estate investment trusts (REITs) and utility stocks.

Dot-Plot, Balance Sheet Cuts Timeline Expected

The central bank didn’t release a dot plot at the end of its January meeting. Instead, it outlined a neutral approach to interest rate adjustments. Per Fed Chair Jerome Powell, the new, “patient” approach was attributed to sluggish inflation and a dismal outlook for global growth.

So the last dot plot available is the one released in December 2018. At that point, the median forecast called for two rate hikes in 2019. Jan Hatzius, an economist at Goldman Sachs thinks the Fed’s will pencil in only one rate hike for 2019. Most economists concur with this view and think the next hike will come in 2020.

Balance Sheet Cuts to End Soon

The Fed is also expected to reveal “how and when” it will stop reducing the size of its balance sheet. At one point, Powell had said these cuts were on “autopilot.”But by the fourth quarter of 2018, investors had started to complain about this process. They alleged that it was resulting in unusually tight monetary conditions.

The consequent decline in equity markets led the Fed to claim that it was “open” to switching its stance on balance sheet runoffs. By last month, the majority of the central bank’s policymakers veered around to the view that “it would be desirable to announce before too long a plan” to end this process.

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