Tomorrow at 2:00 PM US Eastern Time (8:00 PM Berlin), the US Federal Reserve announces its next interest rate decision. This is the most important moment of the week — and your portfolio could swing 1-3%, depending on what they decide.
The Story Behind It
US inflation remains stubbornly above the Fed's 2% target. The labor market is strong. All of this suggests the central bank could act. In July, they held rates at 3.5%-3.75% — but even then, three members voted to raise them.
Then Fed Chair Kevin Warsh came to Jackson Hole in late August and made it clear: "If inflation doesn't fall, we have to raise." Markets went crazy. Suddenly everyone was pricing in the possibility that the Fed could raise tomorrow — for the first time since December 2023.
What Could Happen?
Scenario A: The Fed Raises by 0.25%
- New target rate: 3.75%-4.00%
- Tech stocks fall 2-3% (Apple, Nvidia, Microsoft suffer under higher rates)
- Bank stocks rise (Higher rates = wider profit margins)
- Bonds fall initially, then stabilize
Scenario B: The Fed Waits
- Rates stay at 3.5%-3.75%
- Markets interpret this as "inflation defeated" — tech stocks EXPLODE 2-4% higher
- Gold falls (less need for rate protection)
- Dollar weakens
What Does This Mean for YOUR Money?
If you have an ETF savings plan (like I do), here's what happens: On a hike, your portfolio drops 2-3% short-term. But — and this is key — you just keep saving monthly. Your next monthly buy ten days later gets a 2-3% discount. That's not a disaster, that's a sale.
My buddy Kalle will probably panic-sell tomorrow if numbers turn red. That's exactly what I'd tell you NOT to do. Warsh also said only ONE hike is planned — then they wait again. This is not aggressive rate tightening like 2022, this is a precaution.
My wife Sabine asked me yesterday: "Shouldn't we just sell everything and sit in cash?" I told her: No. Cash is earning almost nothing, and we'd fall victim to FOMO on the next dip. That's like smoking and quitting simultaneously.
How Beginners Should React
- Watch tomorrow, but don't overreact. Markets are red one day, green a week later. That's normal.
- If you don't have an ETF savings plan yet: This is your sign to START NOW. The next few days might bring cheaper entry prices.
- If you're already saving: Run your next contribution as planned. Don't change anything.
- If you're shaking with fear: I was too in 2000 with the T-stock. Fear fades. Patience is the first word on the stock exchange.
Two Hours Before the Decision
Tomorrow at 12:30 PM, US Retail Sales data drops (how much Americans spent yesterday). That's a preview. If it's strong, hope for a hike rises. If it's weak, the expectation wobbles.
Around 1 PM, algorithms and hedge funds will probably start repositioning. It gets loud. At 2 PM, guessing is over.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.