{"id":90675,"date":"2024-09-18T15:28:59","date_gmt":"2024-09-18T12:28:59","guid":{"rendered":"https:\/\/ironfx-com-php8.wp-dev.int.theitops.net\/?p=90675"},"modified":"2024-09-18T15:29:00","modified_gmt":"2024-09-18T12:29:00","slug":"the-feds-interest-rate-decision-to-rock-the-markets","status":"publish","type":"post","link":"https:\/\/www.ironfx-id.com\/vi\/the-feds-interest-rate-decision-to-rock-the-markets\/","title":{"rendered":"The Fed\u2019s interest rate decision to rock the markets"},"content":{"rendered":"

The main event for traders of the week<\/a> may be the release of the Fed interest rate decision later today. The bank is widely expected to cut rates and what remains to be seen, is to which degree the interest rate is to be reduced. It should be noted that it is the first time the bank is expected to cut rates in four and a half years. Analysts are highlighting that e meeting is to be \u201clive,\u201d implying that the ultimate decision may be a result of the discussions between policymakers at the meeting.<\/p>\n\n\n\n

Hence the uncertainty is elevated while the stakes are high. The bank\u2019s dual mandate dictates that it mission is to keep inflation low and steady with the bank adopting a 2% yoy target and at the same time promote maximum employment. It should be noted that the CPI and PCE rates are slowing down in a clear indication that inflationary pressures are easing in the US economy. At the same time the US employment market\u2019s tightness is easing if not a slack may be slowly building up.<\/p>\n\n\n\n

At the same time, the expansion of economic activity seems to be slowing down and thus the worries for a soft landing of the US economy tend to be enhanced. Also some market analysts are highlighting the possibility that the Fed is allready to late in lowering its interest rate and expression that the FED \u201cis behind the curve,\u201d implying exactly that is widespread.<\/p>\n\n\n\n

The release is expected to hit primarily the FX market but also have strong ripple effects in US stockmarkets, gold\u2019s price and possibly also oil prices<\/a>. Indications for the bank to be less dovish than what the market expects could support asymmetrically the USD and at 2the same time weigh on US stockmarkets<\/a>, gold and oil prices.<\/p>\n\n\n\n

For the time being we note that the market seems to be pricing in a fifty basis points (bp) rate cut by 63% according to Fed Fund Futures (FFF), while the other 37% implies that a twenty-five bp rate cut is also sufficient. Yet FFF also implies that the market expects further lowering of seventy-five bp of the Fed\u2019s interest rate by the end of the year.<\/p>\n\n\n\n

Hence the dovish expectations of the market are intense and imply that not only the width of a possible rate cut by the bank is important, but also the bank\u2019s further intentions. Should the bank actually deliver a fifty bp rate cut as expected we may see US equities gaining some support, while a twenty-five bp rate cut would contradict market expectations and could weigh substantially on US stock markets and gold and at the same time support the USD.<\/p>\n\n\n\n

As for the Fed\u2019s intentions we highlight four elements. The first would be the bank\u2019s forward guidance, included in the accompanying statement. Should the document be characterised by a clear cut dovish tone, thus verifying the market\u2019s dovish expectations, we may see equities getting some support while US Stockmarkets and gold\u2019s price could get a lift.<\/p>\n\n\n\n

The second would be the new dot plot, showing the expectations of Fed policymakers about where interest rates are to land by the end of the year, the next year, the year after that and beyond. Should Fed policymakers show that they expect the interest rate to land higher than what the market expects we may see the dot plot weighing on stock markets and gold and at3 the same time support the greenback.<\/p>\n\n\n\n

The third element of interest for market participants, may be the bank\u2019s macroeconomic projections. Should we see a more optimistic outlook for the US economy, supporting the scenario of a soft landing and CPI rates being expected to ease further, it could be supportive for the USD as the pressure on the Fed to cut rates hastily further would ease. Last but not least, we highlight Fed Chairman Powell\u2019s press conference half an hour after the release of the Fed\u2019s interest rate decision.<\/p>\n\n\n\n

Should the Fed Chairman maintain a clearcut dovish tone in his press conference we may see US equities getting some support and weighing on the USD, while any hesitation for fast and extensive rate cuts, thus contradicting the market\u2019s expectations for extensive rate cuts to come could have an adverse effect on US equities and support the USD.<\/p>\n\n\n\n

Please note that the press conference is expected to extent volatility for the markets. Hence its not only the release of the interest rate decision as such which is to set the minds of market participants but also Fed Chairman Powell\u2019s press conference. The Fed Chairman is well known to have been able to reverse the markets\u2019 reactions in the past.<\/p>\n\n\n\n

Ph\u00e2n t\u00edch k\u1ef9 thu\u1eadt<\/strong><\/h2>\n\n\n\n

Besides fundamentals, we also note the technical aspect of the release. We intend to cover all three major categories trading instruments, namely the FX market<\/a>, US equities and gold. For the FX market we chose USD\/JPY to technically comment, for Equities and seeking a broader view we chose S&P 500.<\/p>\n\n\n\n

USD\/JPY Daily Chart<\/strong><\/h3>\n\n\n\n
\"USD\/JPY<\/figure>\n\n\n\n