FOMC Statement, Economic Projections & Press Conference

FOMC Statement and Economic Projections will be released today at 6:00pm GMT followed by Press Conference at 6:30pm GMT. These events will likely see volatility and widening of spreads in the seconds before release.

We advise against holding USD positions unless they are already at break-even. Even if the position is at break- even, also consider other factors such as potential slippage, and your brokers practices during extremely volatile events. At current, market expectations regarding the path of rate hikes still differ significantly from that of most Fed members, a hawkish and positive Fed may help align market expectations with the Feds which would be supportive for the dollar. On the other had a more pessimistic outlook and dovish tilt by the Fed will likely see USD sell off. Following the Feds rate decision, economic projections, and statement, will be the FOMC press conference, this will also have the potential to cause volatility and sudden moves in USD.

Description

The FOMC meet to decide the Federal Funds Rate, which is the interest rate at which depository institutions lend balances held at the Federal Reserve to other depository institutions overnight. They announce their decision alongside a statement. The FOMC Statement is the primary tool the FOMC uses to communicate with investors about monetary policy. It contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes. The FOMC usually changes the statement slightly at each release; it’s these changes that traders focus on.
Four times per year the FOMC also publish a report for Economic Projections. This report includes projections for inflation and economic growth over the next 2 years and, more importantly, a breakdown of individual FOMC member’s interest rate forecasts. On the occasions where the Statement is accompanied by Economic Projections, the FOMC also holds a press conference. The press conference is about an hour long and has 2 parts; first, a prepared statement is read, then the conference is open to press questions. The questions often lead to unscripted answers that create heavy market volatility.

Summary

At the December meeting the fed’s dots indicated that Fed officials were expecting on average 4 hikes in 2016 with the first most likely to be announced in March. Since December however as global financial conditions tightened, market pricing by February had almost completely priced out any rate hikes in 2016. As market conditions have gradually improved, along with US data continuing to show a strong labour market and inflation continuing to progress towards the Feds target of just below 2%, market pricing for a hike this year now stands at just below 80%, with almost a 30% probability of 2 hikes. In regards to March however Fed Funds futures prices currently suggest a 0% chance of a hike at this meeting. Although the overall consensus is for the Fed to remain on hold, there have been several analysts stating that if the Fed truly are data dependant then a hike in March is justifiable, however given recent Fed comments a hike is unlikely at this meeting, with only minor changes likely to be made to economic forecasts, and the Fed sticking to its usual themes of gradual rate hikes which will be dependant on the US economy. One change which will be a focal point for the market however will be the release of the Fed’s ‘dots’, consensus is for a change to 3 hikes this year, from December’s 4.