Today at 8 P.M. the decision of the Federal Open Market Committee (FOMC) on interest rates will be published after a two-day meeting, which began yesterday. In addition to the decision itself tonight, the FOMC statement will be published with the latest macroeconomic projections. There will also be a press conference.
The market expects a lot from the FED, as it see the possibility of cutting interest rates by at least 75 basis points by the end of this year. The current range for the federal funds rate is 2.25-2.50 percent, thus the materialization of market expectations would mean that by the end of the year the range would be 1.50-1.75 percent. It would be a significant scale of interest rate cut in the US.
The main argument for such a fast interest rate cut in the United States is the result of a trade war between the US and China and its negative impact on the economy, industry, labor market, company profits, which in turn increased the likelihood of recession in the US. In addition, the economy may already be in the late economic cycle, which has been extended by non-standard monetary policy, which should naturally lead to a slowdown. Hence the investors' high expectations regarding interest rate cuts.
Tonight we will see how the Federal Reserve approach is consistent with investors' expectations. It is believed that the FED will open its way to cut rates in the near future, if only the economic situation in the US deteriorates. The FED may reduce macroeconomic projections for GDP and inflation.
Investors' attention will be focused on the so-called dot chart, where FOMC members determine what level of interest rates they expect in the coming years. If there is a significant reduction in the projection, this may have a negative impact on the US dollar. This currency will remain the center of attention this evening. The option market measures the increased volatility on the EUR/USD pair, and by looking at the expected range it is less than 70 pips. It promises to be an exciting evening.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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