What’s priced in for the Federal Reserve ahead of today’s FOMC decision

Here is the ranking of things that matter to the market right now:

1) Tariff news

2) AI news

….

….

3) The FOMC

I don’t expect today’s rate announcement to be a big market mover but, if anything, there are risks that Powell pivots more-strongly to neutral. That could lead to rising Treasury yields and a stronger US dollar.

At the moment, the market is pricing in virtually no chance of a move today from the range of 4.25-4.50%. However by the May meeting, the market sees a slightly larger chance of a cut rather than staying unchanged.

For year-end, there are 46.8 bps of easing priced in and there isn’t much beyond that, which puts the terminal rate in the 3.75-4.00% range.

I think developments in broader markets are going to be driven by tariffs, China, US corporate tax cuts and how the economy develops under Trump much more than small indications from the Fed. The good news is that there is a big ‘Fed put’ if things in the economy go wrong. That could deeply undermine the US dollar but it should provide support for risk assets.

This article was written by Adam Button at www.forexlive.com.