FOMC preview: FOMC likely to hold out for Biden’s fiscal package
The Federal Reserve look unlikely to shift their monetary policy stance, but new voting members and President provide change for the new year.
The Federal Open Market Committee (FOMC) are back in focus this week, with the latest two-day meeting set to conclude on Wednesday 27 January.
Will the FOMC take any action at this meeting?
The Federal Reserve (Fed) look unlikely to adjust the dials at the forthcoming meeting, with the FOMC likely to follow in the footsteps of the Bank of Japan (BoJ), Bank of China (BoC), and European Central Bank (ECB) in keeping things steady as they wait to see exactly how things play out.
The December meeting brought a fresh update to the economic forecasts, meaning that the bank has few new signals to react to beyond the change at the White House. US President Joe Biden is expected to bring greater fiscal support for the economy, and while we are also seeing more stringent economic measures being put into place to deal with the virus, he is pushing for a substantial $1.9 trillion stimulus package to overcome near-term economic difficulties.
With just two weeks until the Trump impeachment trial gets underway, we are likely to see a major push to pass the stimulus package before everyone is sidetracked once again. As such, there is little chance of a major shift in policy from the Fed at this forthcoming meeting.
Focus on Powell press conference
With the Federal Reserve (Fed) unlikely to shift on the policy front, traders will be keeping a close eye out for any changes in tone from Jerome Powell (chair of the Fed) when the press conference comes.
Recent rumours that the committee may be considering a plan to start tapering their asset purchases was swiftly cast aside by Powell. However, with many expecting to see a gradual improvement in sentiment from the Fed, markets will hope for a prolongued sweet spot where the Fed are both optimistic yet unwilling to discuss removing any supportive measures.
Undoubtedly, the vaccination efforts do provide a basis for economists to see a potential sharp economic rebound. However, those efforts are reliant upon us not seeing any new variant that would be able to circumnavigate those vaccines.
Weakness in both jobless claims and retail sales do provide grounds for anxiety over near-term economic strength, yet the 2021 recovery is likely built from second quarter (Q2) onwards.
New year brings new committee
One notable event that comes with a new year is that the see a shift in the composition of the FOMC. The FOMC consists of twelve members, four of which are rotated each year.
On this occasion, we see Bostic, Evans, Barkin and Daly gaining the ability to vote on interest rate decisions, while presidents of the Minneapolis, Philadelphia, Dallas and Cleveland Fed banks will be removed from that duty.
While this is not expected to make a huge difference, it notable that Bostic recently speculated that the Fed might be able to 'recalibrate' in 'fairly short order'. This helped spark the speculation that we could see them swiftly raise rates once the economic picture improves.
Dollar index technical analysis
The dollar has been hit hard over the course of the past nine months, with risk-on sentiment seen throughout markets helping to drive the price back down towards the major double top neckline at 87.93. We are not quite there yet, but it is worthwhile noting this major support level as a gauge of sentiment over the long term.
From a short-term perspective, things are looking a little bit brighter given the recent consolidation seen since suffering widespread losses in Q4. With the price starting to turn higher off the back of a deep retracement, there is a good chance we could see the dollar start to strengthen as we build on this rise through 90.28 resistance.
A break below the 89.88 level would start to see things unravel again, yet there is a chance we could start to see some bullish price action gather momentum if we start to push up through the likes of 90.68 and 90.93.
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