FOMC preview

The fed is Expected to hike rates by .25 %,it will be an increase in  the band which currently stands between 0-.25%.The new band will be .25-.50%.In the new year markets will  watch to see where the level of rates are between that band. Story for next year.

Expected :

  • .25 % hike
  •  ” not a one and done hike  statement”
  • Lowering by at least .25% the expected end of year fed funds forecast for 20 17,18 and long run

Only click trade will be if fed leaves rates unchanged,Markets will be volatile so don’t be tempted.

Thoughts:

Experts tossing around the dovish hike scenario in that a rate hike will happen but with a statement and rate path adjustment to indicate a data (maybe inflation) dependent fed,that will hike rates gradually and not on a set course.This is main focus of markets. The markets pricing in a lot less FED hikes than fed  predicted in September.The 2 predictions do not have to be equal,But the market want to see FED lower the  end of year expectations by at least .25%( per GS).This is where some of the market  action could come from in the form of whether or not FED disappoints  expectations.This is the Fed dot Plot story/

  • FOMC meeting    2015      2016    2017    2018   longer term
  • Sep 15 median   0.375     1.375   2.625   3.375    3.5
  • Jun 15 median   0.625     1.625   2.875           3.75
  • Ma5 15 median   0.625     1.875   3.125           3.75

Quarterly Economic projections will be published at this meeting as well.An Update of GDP,Inf and Unemployment will be given.these may hold some clues into Fed thinking if the changes to Inflation,et. al   are Big.

FED statement will be adjusted towards solid job growth and stronger assumption of Inflation reaching goal.In a sense statement has to reflect  a better economy  as rates will be hiked.Watch for Dovish dissenters

I believe the market is trading in a Sell the  Rumor buy the news . The SPX is down roughly 5% since DEC 1  and 2 year yield  almost touched 1 %  a 6 year high.Barring a big surprise From FED one that doesn’t correspond to what market has priced.  I believe stocks and bonds will be higher by days end.Watch the curve action.Plenty of chop to happen post number and press conference

lastly their will be other rates that will be adjusted higher,Such as the Discount rate,the rate on overnight reserves  and the repo rate.These are more more of a “House cleaning type” and shouldn’t have any impact on the trade.

 

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