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Fed Meeting preview: Powell likely to hold off as recovery continues

The Federal Reserve come back into the fray on Friday, but with the recovery on track, the election result could be key in guiding future decision making.

The Federal Open Market Committee (FOMC) are coming back to the table once again in the coming days, with the latest meeting set to conclude on Thursday 5 November.

Will Powell step up in the wake of the US election?

Thursday's Federal Reserve (Fed) meeting comes in a historic week for US politics, with the election taking place just two days prior. The proximity of this meeting to that election should stifle any expectations of a fresh bout of easing from the Fed.

From an economic perspective, there appears to be little to worry about if the latest data is anything to go by. Third-quarter (Q3) growth of 33.1% set a record and managed to erase the 31.4% economic collapse in Q2. With consumer price index (CPI) (1.4%), and core PCE inflation (1.5%) both rising towards the 2% threshold, there is also less pressure from that perspective.

Finally, the elevated coronavirus cases and impending have done little to dent confidence across both consumers and businesses. Elevated manufacturing and services PMI surveys point towards ongoing expansion for businesses, while consumer confidence and retail sales figures highlight optimism over future consumption.

Market forecasts point towards a somewhat quiet meeting ahead, with both asset purchases and interest rates widely expected to stay put. Interestingly, that outlook extends out for some time, with Reuters pointing towards no move in rates for over a year.

As such, expectations over future action at the Fed will have to be driven by any future changes in the economic picture. Will Biden win and heighten the likeliness of a nationwide lockdown? Would a Blue wave bring an oversized stimulus package to lesson the need for any Fed action?

Many questions remain, and the outcome of the election will be the first step in informing opinion at the FOMC. For now, the committee is likely to remain satisfied that the economy is moving in the right direction despite the high prevalence of the virus.

Will the S&P 500 recovery continue?

The S&P 500 has been pushing higher in the lead up to the election, with last weeks selloff seemingly in the rear-view mirror. Unfortunately, significant questions remain over exactly how this week is going to play out.

With that in mind, traders should keep a keen eye out for whether the index can remain above the 3210 threshold or not. With the index having failed to break below that level despite recent weakness, the long-term uptrend remains intact.

With the stochastic having crossed back up through the 20 threshold for just the third time in eight months, there could be further upside if those two previous buy signals are anything to go by. As such, a bullish outlook holds for the S&P 500 unless the price breaks below the 3210 mark.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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