EUR/USD at fresh weekly highs post-Fed
The Federal Reserve raised the rates as expected and also left the projections in the dot plot unchanged at 3 hikes for 2018.
The greenback fell against all of its major rivals, after Fed's monetary policy decision, as despite raising rates, the market had already priced in, and there weren't changes to the future outlook. Furthermore, US November CPI released earlier today came in below expected, with policymakers still clueless on why.
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December Fed meeting preview
US policymakers begin a two-day monetary policy meeting today with an announcement expected on Wednesday, and there are multiple reasons to believe it will be one of "those" meeting, although maybe not as big as next February one. Firstly, a rate hike has been largely anticipated and the market is taking it for granted. Secondly, is one of those known as "live-meeting" which includes a new dot plot and a Yellen's speech, her last one, as on February, Jerome Powell will become the Federal Reserve's head.
Tomorrow marks Yellen’s last press-conference FOMC meeting before handing over the reins to Jeremy Powell in February, where there’s a widespread belief the FED will raise rates to mark the fifth hike as part of this cycle. Yet as markets are forward looking, the anticipated hike is more than likely priced into the Greenback which leaves it vulnerable to a sell-off if anything less than a hawkish meeting materialises.
The Federal Reserve is widely expected to raise interest rates for the last time this year. This will also be Janet Yellen's final move before she hands over the baton to Jerome Powell the first week of February. Fed fund futures are currently pricing in a 98% chance of a hike and given that investors have fully discounted the move, the real focus will be on guidance. Yellen doesn't have any particular reason to provide specific guidance on future policy as she won't be the one following through with...
US President Trump just announced Jerome H. Powell as the next Chair of the Board of Governors of the Federal Reserve System nominee.
"Jay" Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. He was reappointed and sworn in on June 16, 2014, for a term ending January 31, 2028.
Prior to his appointment to the Board, Mr. Powell was a visiting scholar at the Bipartisan Policy Center in Washington, D.C., where he focused on federal and state fiscal issues. From 1997 through 2005, Mr. Powell was a partner at The Carlyle Group.
November Fed Meeting Review
No rocking of the boat
- The Fed left the interest rate unchanged at 1-1.25% as widely expected. They still intend to raise the rate in December, as planned.
- The statement contained very few headlines. The Fed sees through the effect of the hurricanes and see the economic growth as "solid". That is positive.
- They have a more cautious view on inflation, calling it "soft". However, this will not stop the hike.
- The market reaction was minimal, with minor changes in the dollar.
The Federal Reserve held rates steady this month, as the market had expected, however, they continue to prep the market for further rate hikes, including a hike in December. This is roughly in line with market expectations, there is now an 87% chance of a rate hike in December priced into the Fed Funds Futures market, which has only ticked slightly higher post this Fed statement.
The markets are now pricing a 97.7% probability of a Fed rate hike in December, according to the CME Group FedWatch Tool. In its statement, the Committee didn't provide any significant changes when compared to the September meeting. The FOMC reiterated that the labor market was continuing to strengthen while the economic activity was expanding at a solid pace.
September Meeting Review
Fed Dot Plots indicate three rate hikes for 2018
If QE was crisis-era stimulus, the normalization announced means the end of stimulus. Nobody is getting this message just yet. The only concession to the new permanently lower natural rate is the ending point for Fed funds at 2.80%...
The FOMC meeting minutes showed that some officials were did not think that further rate hikes were warranted and said that the central bank must assess the low inflation. On the other hand, officials said that there were risks for...
What's important about Federal Reserve’s monetary policy meeting?
With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks.
In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions.
A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency.
If rates remain unchanged, attention and also main news and analysis turn to the tone of the FOMC (Federal Open Market Committee) statement, and whether the tone is hawkish, or dovish over future developments of inflation.
How to trade the event?
- Do not rely on the Fed to determine the direction of the dollar in the coming months.
- The dollar tends to follow its predominant trend when the Fed starts to hike rates.
- There is no direct link between the Fed hiking rates and the usd falling. When a weak usd has coincided with a Fed hiking cycle, it has been falling for some time.
- Due to this, we may see a muted reaction to a potential Fed rate hike.
FED educational resources
What is the Fed?
The Federal Reserve System (Fed) is the central banking system of the United States and it has two main targets or reasons to be: one is to keep unemployment rate to their lowest possible levels and the other one, to keep inflation around 2%.
The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors, partially presidentially appointed Federal Open Market Committee (FOMC). The FOMC organizes 8 meetings in a year and reviews economic and financial conditions. Also determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.
WHO IS FOMC'S CHAIRMAN?
Janet Louise Yellen (born August 13, 1946) took office as Chair of the Board of Governors of the Federal Reserve System (Fed) on February 3, 2014, for a four-year term ending February 3, 2018. She had already previously served as a Vice Chair from 2010 to 2014. This American economist also serves as Chairman of the Federal Open Market Committee (FOMC), the System's principal monetary policymaking body.
The World Interest Rates Table
The World Interest Rates Table reflects the current interest rates of the main countries around the world, set by their respective Central Banks. Rates typically reflect the health of individual economies, as in a perfect scenario, Central Banks tend to rise rates when the economy is growing and therefore instigate inflation.