Welcome to Fed day

After the slew of US data last week, this will be a lot more interesting than it otherwise should. The question now is whether or not the Fed still sees fit to keep a June rate cut on the table. And there will be two main parts to the policy decision to scrutinise later today.

The first is of course the much anticipated dot plots. Here is the one for December 2023, with the rates pricing from last week:

The focus is on the 2024 dots first and foremost. The last projection showed that the median is for a 75 bps reduction in interest rates this year. It is a close call and the dots today will arguably be just as close, all else being equal.

As always, markets react to headlines. And so, the first move will likely be on what the median dots will be for 2024. Is it going to stay at 75 bps or are we going to see 50 bps instead? Then, it will come down to how close was the balance of the projections? That might make for a bit of a messy reaction initially.

The next main part will of course be Fed chair Powell’s press conference. It’s all about the way he is going to communicate the Fed’s current stance. Has the data from last week changed anything? Or is the door still open for June until we get to the next set of key economic data releases?

Here is a list of previews to wrap your head around before the decision later:

• FOMC preview – shift to projection for two rate cuts for 2024 from 3 is a “close call”
• FOMC preview – a 25% to 30% chance of the Fed signaling only two rate cuts in 2024
• Federal Open Market Committee (FOMC) preview: the clear risk is it defers cuts
• FOMC preview – we’ll get hints on 3 or 2 cuts ahead this year
• Fed preview: Ignore the dots, focus on Powell
• The dot plot is overrated but even the minute details will matter this time

This article was written by Justin Low at www.forexlive.com.