All eyes are now on the two-day FOMC policy meeting that gets underway today. The importance of this particular meeting has surged ever since hopes started surging of the Fed lifting the key interest rates in the September meeting. Nonetheless, expectations of a September rate hike has started fading as uncertainty took over in recent days. Today, let’s look at funds in focus if the Fed does not announce a rate hike.

During the July meeting, the Fed had not provided any clue about the timing of the rate hike, but had somehow left the door open for a September hike. Nonetheless, many new events have changed the financial world scenario since the last Federal Open Market Committee meeting that was held in July.

Subdued inflation is a worry though labor data has been encouraging. But the latest batch of economic data has not really clarified if the Fed can raise rates. Meanwhile, China, the second largest economy, has consistently reported dismal economic data of late; sparking global economic slowdown fears that led to global market selloffs. Moreover, what is causing much of the uncertainty is market volatility.

Rate Hike Uncertainty

Moving beyond the economic data, a strong reason for not hiking the rate is market volatility. It may not be easy for the Fed to raise rates amid such volatile market. In fact, the Fed has never raised key federal funds rate when the CBOE Volatility Index (VIX) has been above 25 in the last 20 years. The average level of VIX has been just 15.7 when rates have gone up. This is even lower the long-run average of 20. VIX is “a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index (SPY) option prices.”

What is worse for investors is that volatility is predicted to continue for some more time. According to the Wells Fargo Advantage Funds chief portfolio strategist Brian Jacobsen, volatility may continue for three to four months. China, one of the primary reasons for the market rout, cannot assure less volatility. Recently in China, a measure of 50-day volatility had increased to its highest point in 18 years.