FOMC Meeting - July Preview US FOMC Statement US Federal Funds Rate US FOMC Press Conference Forecasts and expectations Fed Funds Rate: The Fed is widely expected to raise rates by 25 bps. {image} Rate Statement: The 25 bps point rate hike has been priced in. Traders will be looking to the rate statement for clues about the next (Sept) meeting. The Fed is likely to keep it vague in...
, shared on Cable update thread, thank you
{quote} Excellent post
Forecasts and expectations
Fed Funds Rate: The Fed is widely expected to leave rates unchanged.
Rate Statement: The Fed has been pretty good at making subtle changes to the statement as to not rile the markets. The Fed will likely stick with the script. Inflation remains elevated, will assess new information as it comes in, and prepared to adjust further.
Economic Projections: The dot plot is where the focus will be. The market is going to look for clues about how many Fed officials think rates need to rise further, Secondly, how long does the Fed intend to pause for, and is there any change from last projections. In short, it's all about peak rates and where is the first rate cut. For reference, here's last dot plot from June:
Press Conference: With inflation ticking up and oil prices looking like they're going to keep going up, Powell should will get plenty of questions on inflation. He's likely to keep his stance that risks and uncertainties remain, Fed will remain data dependent, and they are prepared to act if necessary.
The first thing the market will be keyed in on is for clues about a Nov rate hike. Currently, there's about a 30% chance of a hike.
Additionally, there's a ton of uncertainty, along with a disparity between Fed guidance and market expectations about how long the Fed will remain on hold. In other words, when will we see the first rate cut? That'll be in the Economic Projections and a big point of focus.
Powell will continue to try and toe the line in the press conference. But remember, regardless of his intentions, recently the market has interpreted whatever he says as dovish.
As far as trading opportunities, the conservative approach is to wait until after Powell starts his presser and a trend emerges. The two scenarios are:
As always with the FOMC meetings, be careful with any trades taken before Powell's press conference. Whatever direction the market takes as the rate decision is announced and statement released, it can be quickly reversed 30 minutes later as Powell starts to speak. Lots of moving parts here. As always, caution is advised. Good luck out there!
Forecasts and expectations
Fed Funds Rate: There just about 100% chance the Fed keeps rates where they are.
Rate Statement: The Fed has been pretty good at making subtle changes to the statement as to not rile the markets. There's some speculation that they might indicate a thawing outlook along with the need for data to justify a rate cut.
Economic Projections: The dot plot is where the focus will be. The market is going to look for clues about when Fed officials will begin to cut rates. Any change from last projections will be scrutinized. It only takes two individual dots moving higher to raise the 2024 median. Three dots are enough to push the long-run dot 25bp higher. For reference, here's last dot plot from June:
Press Conference: There's a chance we see Powell come out slightly dovish without claiming victory on inflation. The combination of inconclusive data and slowing year-on-year core inflation could be enough for Powell to guide that the committee is on track to gain ‘greater confidence’ to cut policy rates this year.
It's really all about June. The market is pricing in a June cut and any changes to that sentiment will be what triggers markets.
There is still some disparity between Fed's guidance and market expectations about when the first cut will happen. Most Fed officials have been consistently saying "later this year" while there's been one (Bostic I think) that's said "later this summer."
Powell will continue to try and toe the line in the press conference. But remember, regardless of his intentions, recently the market has interpreted whatever he says as dovish. This meeting there's a little more reason for him to actually be dovish.
As far as trading opportunities, the conservative approach is to wait until after Powell starts his presser and a trend emerges. The two scenarios are:
As always with the FOMC meetings, be careful with any trades taken before Powell's press conference. Whatever direction the market takes as the rate decision is announced and statement released, it can be quickly reversed 30 minutes later as Powell starts to speak. Lots of moving parts here. As always, caution is advised. Good luck out there!
Forecasts and expectations
The Fed is widely expected to keep rates on hold. The focus will be on the dot plot and how many rate cuts the market should expect in 2024. In March, 2 members opted for no change this year, 2 for one cut, 5 for 50bp of cuts, 9 for 75bp, and 1 for 100bp.
Traders expect the Fed to shift back rate cuts but there's a lot of uncertainty on exactly how much. The key questions are how many rate cuts will be forecasted for this year? 2025 will be in focus too. The market has already priced in a hawkish shift but have they priced in enough? Too much? Currently the market is barely pricing in two by the end of the year, a 25 bp cut in Sept and another in Dec.
Powell will likely take a dovish stance in the press conference. CPI data earlier in the day will determine how easy that can be achieved.
Bitcoin hasn't reacted much but big moves can't be ruled out. Economic data has been having a bigger impact on Bitcoin and traders should expect the same from this meeting. Expect big moves in USD-denominated assets, especially currencies.
Jan
March
May
If the dot plot shows two 2024 cuts that will be dovish and should trigger weakness in the US dollar. That would be bullish for bitcoin.
If the dot plot shows only one in 2024, that could send the dollar higher, and bitcoin lower.
The market has been pricing out rate cuts since April, so there's potentially more risk in a more dovish Fed.
Regardless, any initial moves can be reversed as Powell takes the stand. As always, caution is advised. Good luck out there!
Forecasts
Last month's impact
Last month's CPI data came in soft, sending the USD lower. Dollar-denominated assets rallied.
CPI remains the most closely watched US (and global) data. This month will be no different.
Consensus for CPI is that it'll show 3.1% on an annual basis. While a decline from last months, that's still well above the 2% target the Fed's trying to get to. Last July CPI came in at 3.0% and since then it's remained stubborn and this is why the Fed won't lower rates. They need to see it break below 3.0% and trend lower. Anything lower than 3.0% could trigger some big moves. Anything higher than the 3.1% forecast would spark a rally in the USD.
FOMC cut probabilities are telling us that the market is pricing in a 25 bps rate cut in Sept.
And in Dec, another 25 bps rate cut is already priced in.
Expect these probabilities to move as traders react to the latest inflation readings.
On lower than expected inflation data, US dollar will fall as the market prices in a more dovish Fed. Higher than expected inflation data is bullish for the US dollar as a more hawkish Fed is priced in. Any significant deviation from forecasts could provide significant follow through. If the headline and core data paint a different picture, look out. The market has been in a narrow range and heavy volatility is expected.
There should be ample trading opportunities. Stay patient. As always, good luck out there!
Forecasts and expectations
The Fed is widely expected to begin cutting rates at this meeting, however, the size of the cut remains uncertain. The debate is between a 25-basis point cut, which has been the expectation for months, and a larger 50-basis point cut.
Markets are currently pricing in a 63% chance of a 50bps cut, with expectations for further cuts totaling around 250bps over the next year. The US dollar has taken a hit as a result.
Watch for any updates in the dot plot. The June SEP hinted at one to two cuts by the end of the year. If the September SEP moves towards three cuts in total this year, it would further reinforce dovish expectations. There likely won't be consensus but the focus will be on how much in cuts by the end of the year, as well as how much in 2025.
Crypto markets, especially BTC, may see volatility around the FOMC release, as the sector has shown sensitivity to economic data in recent months. A dovish cut could push Bitcoin higher, especially if USD weakness extends.
A 25bps cut could see a sharp rebound in the USD, especially if the dot plot remains conservative. On the other hand, a 50bps cut or a dovish dot plot would likely push the dollar lower.
With the Fed expected to cut, 10-year Treasury yields have hit 15-month lows. Any surprise from Powell in his tone, a more hawkish dot plot, or a smaller rate cut could reverse this trend.
U.S. equities have been rallying on expectations of a Fed pivot. If Powell manages to communicate the Fed’s reasoning effectively, stocks could continue their recent upward momentum, particularly if the SEP signals more cuts ahead.
The Fed is likely to initiate a rate cut cycle on Wednesday, but whether the cut will be 25bps or 50bps is still up for debate. Inflation has cooled, but not dramatically enough to rule out ongoing caution from Powell. Markets expect further easing at the next two meetings, and Powell's press conference will be critical to watch for any signs of hawkish pushback or further dovish moves.
Good luck out there! Stay patient and expect trading opportunities to emerge following Powell’s press conference.
{quote} Currentl at 60/40 in favour of 50bps . What data is used to derive the market view of the fed cut? Whats it based on?
