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When it comes to monetary policy among developed economies, FED is the most hawkish central bank and today's FOMC meeting will reinforce that stance. However this hawkishness is already price in and the market is already expecting a rate hike but the timing of the rate hike is what the market focus is right now. A rate hike today is out of cards as the market probability for a NO rate hike is 98%. Even though few months back my assessment was for Jun rate hike following the 2004 template, many things have changed since than and I had to adjust my expectations.
Based on the recent economic data: strong labor market, higher wages which should boost inflation are main factor to consider a rate hike sooner rather than later and we should expect Fed to signal a September rate hike. However if we look on the fed-funds rate we can tell that they only price in a 25% rate hike in September comparing with the market consensus and analysts view which are 70% confident of an September rate hike.
Monetary policy carry a very heavy influence over the strength of the capital markets and depending of the FOMC tone it can put in place new market trends. Today we not only have the FOMC statement but because this is a quarterly report we'll have the Fed Chairwoman Yellen press conference as well which should give us an even better picture when it comes Fed normalization rate cycle. On that front the Fed dot plot will show us the path of rate hikes.
I'll be quite honest here that when it comes to market reaction, I'm not quite sure how the dollar will react but judging by the previous market reaction the dollar was strengthening. However when in doubt better stay out and be in cash because being in cash is a position as well.
Best Regards,
Daytrader21
Figure 1. Perception of Monetary Policy Standing
Based on the recent economic data: strong labor market, higher wages which should boost inflation are main factor to consider a rate hike sooner rather than later and we should expect Fed to signal a September rate hike. However if we look on the fed-funds rate we can tell that they only price in a 25% rate hike in September comparing with the market consensus and analysts view which are 70% confident of an September rate hike.
Monetary policy carry a very heavy influence over the strength of the capital markets and depending of the FOMC tone it can put in place new market trends. Today we not only have the FOMC statement but because this is a quarterly report we'll have the Fed Chairwoman Yellen press conference as well which should give us an even better picture when it comes Fed normalization rate cycle. On that front the Fed dot plot will show us the path of rate hikes.
I'll be quite honest here that when it comes to market reaction, I'm not quite sure how the dollar will react but judging by the previous market reaction the dollar was strengthening. However when in doubt better stay out and be in cash because being in cash is a position as well.Best Regards,
Daytrader21
