The Federal Reserve (Fed) will announce its decision on monetary policy today at 18:00 GMT. Chairman Jerome Powell will read a statement and hold a press conference at 18:30 GMT.
The Fed is expected to keep the Fed Funds rate unchanged at 0.00-0.25%. On Tuesday, the central bank’s lending programs, created during the pandemic, were extended to the end for the year. The current economic situation warrants strong stimulus from the Fed. Market participants will likely look into the statement and also into Powell’s words for clues about further stimulus, as they do not expect major announcements on Wednesday.
Analysts at Nordea expect some significant changes from the Fed, but not at the July meeting. “We find likely that the Fed will formally adopt average inflation targeting (AIT) at some point which, if we are right, should be a clear bullish signal for equities and inflation swaps. However, the July meeting seems too premature for AIT. Consequently, an introduction of AIT at the September meeting seems more reasonable. We still expect YCC to eventually be implemented.”
Fed officials have made clear that they will be making their forward guidance more dovish and outcome-based soon, most likely in conjunction with the formal adoption of an AIT framework, explained TD Securities analysts. They don't expect those developments until after the September meeting. According to them, Powell is likely to continue the process of prepping markets for changes at his press conference.
Implications for S&P 500
The Fed meeting, if delivers as expected (not much), the impact across financial markets will likely be limited. A pessimist Fed could point to more stimulus, but at the same time, it would reflect a more negative reality than what it is currently priced in.
The S&P 500 was rising almost 1% on Wednesday, before the FOMC statement, trading at the highest level since last Thursday. It gained strength after breaking above 3,240. The mentioned area is still relevant, and while above, the prospects to more gains will remain in place. The next key resistance stands around July highs at 3,280.
On the flip side, if the index weakens below 3,240, the bullish pressure would ease. The next support is seen at 3,195 and 3,190; a horizontal level and an uptrend line, respectively. A close below 3,190 would point to more losses in the short term.
About the interest rate decision
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. A rate cut tends to weaken the local currency. If rates remain unchanged (or the decision is largely discounted), attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.
About the FOMC statement
Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive, or bullish for the USD, whereas a dovish view is considered as negative, or bearish.
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