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FxWirePro: What to watch in FOMC meet ahead?

We expect a great deal of debate among FOMC policymakers over the path of the hike as well as whether to go three or more hikes this year or not. While several policymakers like Loretta Mester, Esther George openly supported a faster rate hike, some like Charles Evans scaled back their tone as the core inflation remains just around Fed’s 2 percent target. Charles Evans joined Neel Kashkari in opposing the third rate hike for 2017.

A majority of the Federal Reserve policymakers voted in favor of a hike in the March meeting this year, which shows despite the differences FOMC board remains more or less united.

FOMC will announce its monetary policy decision at 18:00 GMT.

The focus will be on the followings –

  • Policy decisionMost of the analysts and economists expect the Fed to increase interest rates by 25 basis points. The market is pricing a 96 percent chance of a rate hike. So naturally, a rate hike alone would not be very bullish for the dollar. However, since the market and especially EM economies are worried about dollar liquidity, it might be bullish.
     
  • FED’s monetary policy statement – The market would be looking for a clue to future rate hikes by assessing the tone of the statement.
     
  • Fed projections - This is likely to be the most vital piece of document. The focus will be on participants’ projections of future rate hikes, as well as inflation, GDP, and unemployment rate. A faster growth forecast and higher inflation forecast will be positive for the dollar. Projection of a fourth rate hike would be very bullish, whereas same projection of three rate hikes in 2018 is likely to weigh on the dollar. 
  • Press Conference: Jerome Powell’s press conference is scheduled at 18:30 GMT.

The financial market is pretty convinced that the U.S. Federal Reserve would increase rates for the sixth time since 2015 and for the second time in 2018. The market is currently pricing a hike today with 96.3 percent probability.

In its January FOMC projection, the Fed forecasted three rate hikes for 2018, after increasing interest rates thrice in 2017. The market is currently pricing the third hike in September with 73.8 percent probability.

The dollar index is currently trading at 93.9, up +0.09 percent so far today.

 

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