FOMC meeting: three things to watch out for

The Fed meeting will provide markets with clues about the outlook for policy over the next eight weeks. Several key areas are worth monitoring.

Interest Rates

Rates are expected to be lift unchanged at current levels, 2.5%, as the committee looks to judge the impact on the US economy and global markets. The Federal Reserve (Fed) policy took a dovish turn back in January with a speech by Fed chairman Jerome Powell, and the overall outlook has remained the same since then. Previously, markets had thought that there might be up to four rate increases this year, but now the median is two.

The lower expected path for core inflation means that the Fed is under much less pressure to maintain the pace of tightening, and as a result it seems highly likely that 2020 and 2021 will, for the moment, only point to policy being left unchanged, rather than a resumption of the Fed’s tightening policy.

Quantitative Tightening

The committee may even announce that its programme of reducing its balance sheet holdings, known as 'quantitative tightening (QT)', will be paused, giving the market time to absorb the tightening conducted thus far.

The Fed has reduced its balance sheet to $4 trillion from $4.5 trillion, but the continuation of this policy at the end of last year caused stock markets to drop dramatically. About 70% of US household assets are in financial markets, so any drop in stock markets will hit consumer confidence and retail sales. While the Fed does not have a mandate to prop up the stock market, it does have a requirement to maintain the US economy, and a drop in spending will hurt US economic growth.

Thus, we will see the Fed become very circumspect about continuing its QT programme, and it may even pause it for the time being.

Economic projections

Growth expectations will be key at this meeting, as investors face a world where US economic growth continues but Asian and European growth is slowing. This dichotomy is another problem for the Fed – the world economy is not their problem, but a slowdown will hurt the US too.

Trade wars are a chief problem, and the committee will not be able to get away without mentioning them to some extent. But the impact is still filtering through and with trade talks going on, there will be some hope of a resolution in due course.

US economic growth will likely slow in 2019, although not as badly as in other parts of the globe. Thus the Fed will look to be cautious and emphasise the policy tools at its disposal.

A softer outlook could see the dollar lose some ground, and caution about growth will not be an ideal scenario for equities, but a reminder about policy changes and possible loosening of policy might help the stock market.


IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Please see important Research Disclaimer.

Federal Reserve meeting

Find out how the Fed affects the markets ahead of the FOMC meeting taking place between 18 - 19 June 2019.

  • How might the next Fed meeting affect traders?
  • What was decided at the last Fed meeting?
  • How does the FOMC announcement usually affect the dollar?

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Bid
Offer
Updated
Change

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
China 300
-
-
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.