Brace yourselves, forex fellas! The Fed is set to make its interest rate statement in tomorrow’s U.S. trading session so y’all better take a few minutes to figure out how this top-tier event could affect price action.
1. Keep calm and taper on!
As indicated in their previous monetary policy meeting minutes, the FOMC plans to keep up its pace of reducing bond purchases by $10 billion each month, eventually ending stimulus by October this year. This should bring their asset purchases down to $25 billion, comprised of $15 billion in longer-dated Treasuries and $10 billion in mortgage-backed securities.
Aside from that, the FOMC will likely maintain its bias of keeping interest rates at their current 0-0.25% levels for a “considerable time” after asset purchases end.
2. No press conference after the announcement
Recall that Fed Chairperson Janet Yellen’s refusal to give any forecasts on when the FOMC might hike interest rates spurred dollar weakness after their previous policy statement. This time, there is no press conference scheduled after the FOMC statement, which means that Yellen will not be entertaining any follow-up questions at all.
With that, market participants will be paying closer attention to the wording of the official FOMC statement, trying to read between the lines in an attempt to figure out if the Fed is turning more hawkish or more dovish. Even the slightest change in tone and the removal or addition of key phrases might have a strong impact on dollar movement!
3. Fed to acknowledge pickup in employment and inflation
Employment and inflation have been gradually improving in the past months that it could be about time for the Fed to acknowledge that the U.S. economy is performing better. After all, the June NFP report printed impressive results while CPI figures have been coming in mostly higher than expected since March.
However, there’s also a good chance that the Fed could downplay these improvements to keep interest rate hike expectations in check. As in their previous statements, the FOMC could mention that “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”
Unless the FOMC statement contains any surprises, the U.S. dollar might have a subdued reaction to the event, as traders might decide to sit on their hands and wait for clearer clues. What do you think? Share your thoughts in our comment box or cast your votes in our poll below!