BofA: If the Fed hikes rates in October, it will be the biggest positive for U.S. stocks

Odaily News - While investors in global stock markets are still avoiding the word "rate hike," Bank of America strategist Michael Hartnett has put forward a counterintuitive judgment: if the Federal Reserve chooses to proactively raise rates in October, this would not be a negative, but could instead become the biggest positive factor supporting risk assets and underpinning U.S. stocks.

In Hartnett's view, under the current backdrop, if the Federal Reserve delays action, bond investors will continue to demand higher term premiums, pushing long-end yields further up, ultimately forcing financial conditions to tighten on their own. Conversely, if the Federal Reserve proactively raises rates at its October meeting and sends a strong signal of preemptively curbing inflation risks, long-end yields may instead stabilize. At that point, the short-term shock from a rate hike may be smaller than the greater damage caused by disorderly bond market volatility. (CLS)