Another rate hike is unlikely this time around as the disruptions caused by Hurricanes Harvey and Irma have distorted the overall picture of the US economy (witness the spike in initial jobless claims in what has been an otherwise uninterrupted downtrend). However, the important bit will be whether they maintain their commitment to more gradual rate rises. More tightening would likely give further support to the beleaguered US dollar. But given that the chances of a December move are still 47%, the greenback will likely need a more hawkish assessment for the path of rates, i.e. an expectation of more rate hikes in 2018.
Balance sheet reduction, or Quantitative Tightening (QT) as it may become known, is the other thing to watch for. Some banks are expecting the Federal Reserve to announce that QT will begin in October, but the pace will still be a key detail.
The accompanying statement should flag that the recent spate of hurricanes will have caused some softness in the data, but that this will pass in due course and does not affect the overall path of policy towards a tighter position than hitherto.
Looking to the market impact, we would need to see a significantly more hawkish Federal Open Market Committee (FOMC) meeting to really shift the outlook for the dollar, which has steadily declined all year. Set against the recent hawkish shifts by the European Central Bank (ECB) and now the Bank of England (BoE), the Fed is lacklustre by comparison. The real step change may come next year, when changes in committee composition and the potential replacement of Janet Yellen as chair could mean that more hawks are in a position to impose their views.
At present, the EUR/USD rally also remains intact, while the apparent shift in mood at the BoE could mean that the greenback struggles to make much progress. This Fed meeting will be a step on the road to tighter policy, but is unlikely to see any tightening this time around.