Today, FOMC members will make a decision on a possible interest rate hike in the U.S. and for the first time this year will publish a statement to their decision. This, in turn, may affect the quotes of the dollar, gold, stock indices or even cryptocurrencies.
Looking at the federal funds rate futures market, which is traded on the CME exchange, one can see that the probability of interest rate changes in the US today is negligible and amounts to only a few percent. No change in rates, on the other hand, is estimated with a probability of 94.4 percent. Therefore, the key decision seems to be how fast the asset purchase program will be scaled down and how the Fed views possible further hikes in 2022.
The valuation of the first hike in March reaches a probability of 93 percent, of which 88 percent is the chance of a 25 bps hike and 5 percent is the probability of a 50 bps hike. This is where the key game may be played in the near future. Whether there will be a 25 or 50 bps rate hike in March is what investors can look for today.
It is worth noting, however, that today's Fed decision takes place in a higher-risk environment. Looking at the VIX index, which is the so-called fear index measured by monthly volatility from options on the S&P 500 index, we see that it is at 30 points. This is a relatively high level, last seen in February 2021.
It seems that the Fed's main focus lately has been to reassure the markets rather than introduce even more surprises. Therefore, a hawkish stance from the Federal Reserve may not be warranted today, and a more dovish tone could emerge instead.
The Fed's decision will be announced at 8 p.m. today, with Federal Reserve Chairman Jerome Powell's press conference starting half an hour later.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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