What should investors watch in the week ahead? That's easy. The Federal Reserve. But investors, like the Fed, need to be looking beyond the coming week if they hope to stay current.
The central bank is widely expected to raise its target short-term interest rates at its meeting that wraps up Wednesday. Chair Janet Yellen has said a rate hike is a "live option." Other members on the committee making the decision have expressed support. If the Fed does raise rates, it would be the first change in the Fed's borrowing costs since it was cut to zero percent eight years ago.
In preparing investors for the rate hike, the bank has said for months any additional increases would still keep rates below "normal" levels. That statement is meant as an appeasement of sorts that the central bank isn't about to embark on a series of steadily or quickly escalating borrowing costs.
And why would it? The Fed's own economic projections are underwhelming. It expects the U.S. economic expansion to continue, but only at a 2 percent annual rate over the next few years. The Federal Reserve Bank of Atlanta's near-term forecast is even more lackluster. It predicts the national economy is growing by only 1.5 percent right now. This is not the kind of economic growth that fuels a broad-based boom and substantially higher interest rates.
In its statement next Wednesday and the subsequent press conference with Yellen, the Fed is likely to stress its flexibility regarding future rate decisions. Investors will need to adapt.
Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. Follow him on Twitter@HudsonsView.