Lee Sees Fed Rate Hike as Bullish for Stocks

Tom Lee, Fundstrat's co-founder and head of research, expects the Federal Reserve to raise interest rates by 25 basis points today. He argues that this move could still spark a substantial equity rally rather than derail one.

The Federal Open Market Committee (FOMC) meets today, with a decision expected at 2 p.m. ET. Lee believes the hike would remove pressure for further increases, sending Treasury yields lower and having a bullish effect on stocks.

Lee points out that the Fed does not need to hike to curb inflation, citing Goldman Sachs data on four temporary distortions: portfolio fees, flash memory, tariffs, and energy. These distortions add 1.7 percentage points to headline Personal Consumption Expenditures (PCE) inflation and are expected to fade within six months regardless of Fed action.

Lee estimates that these distortions could cut PCE by about 100 basis points on their own, suggesting that the coming hike likely reflects market pressures rather than the Fed's own read on the economy. He says, 'I don't know if the Fed really needs to accelerate that process.'