Markets and economists are pretty much unanimous in that the FOMC will be leaving the Fed Funds target range on hold at 5.25%-5.50% (22-year peak) for a third successive meeting today at 7:00 pm GMT.

As you can see from Bloomberg’s WIRP function, futures markets are fully pricing in a no-change today. Expectations for Fed rate cuts have also been trimmed of late. Markets are still pricing in the first full 25bp rate cut in May 2024, with a 44% chance that we may even see a 25bp cut in March. Overall, though,110bps is currently priced in by the year’s end, or nearly five 25bps of cuts.

The meeting’s focus, therefore, will be drawn more to the policy statement and the Summary of Economic Projections (SEP).

The Fed’s dot plot, which graphically demonstrates FOMC participants’ mid-point projections of the Fed Funds target range over the coming years, will be widely scrutinised over the number of rate cuts projected next year and in 2025. Interestingly, a survey report of nearly 50 economists from Bloomberg revealed that the dot plot could display between two to four rate cuts for 2024 and five in 2025.

Changes to inflation, unemployment and growth forecasts are also expected in the economic projections today, with GDP growth likely to be revised higher due to the preliminary (second estimate) GDP data showing that US economic activity jumped to 5.2%.

Thirty minutes following the rate announcement, Powell will take to the stage and deliver prepared remarks and answer questions from the press. It is unlikely that the Fed chair will deviate too much from previous remarks: the Fed will assess incoming data and essentially leave the door ajar for further policy tightening. It is incredibly unlikely that anything will be said in terms of cutting rates with inflation still above the Fed’s target, and may also face questions from recent comments about possible rate cuts from US Federal Reserve Governor Christopher Waller.

Markets

We have not seen much change in price movement in the US Dollar Index this week, sandwiched between support and resistance on the daily scale at 103.62 and 104.15. Of technical note, nonetheless, daily price remains north of its 200-day simple moving average (SMA) at 103.54.

Overall, the technical picture suggests further upside for the buck. The FP Markets Research Team released a more in-depth view here.

The S&P 500 is on a tear, recently eclipsing July peaks of 4,607 and fast approaching daily resistance priced at 4,653, followed by weekly resistance at 4,743, positioned just south of the all-time high of 4,818. Consequently, this market remains (technically) in favour of bulls for the time being.

Consider checking out the week-ahead post released on Monday for this market here.

Charts: TradingView

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