FOMC meeting Rate hike a done deal but what about inflation

The kickoff to the World Cup is less than 48 hours away, but before getting to that widely-watched celebration, traders will be tuning into a high-stakes performance of another kind: tomorrow’s Federal Reserve Meeting.

Ever since former Fed Chair Ben Bernanke’s introduced “communication policy” as a tool for influencing markets, the central bank has sought to telegraph its changes in monetary policy well in advance. Assuming the central bank sticks to the script this time around, another 0.25% interest rate hike is a virtual certainty. Indeed, the market-implied odds of such a move are above 96% according to the CME’s FedWatch tool, so an interest rate hike is already “priced in” to current market prices.

That said, the wording of the accompanying statement, the quarterly Summary of Economic Projections (including the infamous “dot plot” of FOMC members’ interest rate expectations), and Fed Chair Powell’s accompanying press conference could all exert a substantial impact on markets. Specifically, traders will be looking for signs that the central bank is growing increasingly wary of rising price pressures, especially in the wake of this morning’s Consumer Price Index (CPI) report, which showed prices rising 2.8% year-over-year, the highest rate in 75 months. If Powell and Company pay more heed to signs of inflation heating up, investors will likely view the meeting as hawkish and increase bets on two more rate hikes this year (September and December).

An under-the-radar event risk from tomorrow’s meeting is the chance that Chairman Powell announces that the Fed will be holding a press conference after every one of its meetings, instead of the current schedule of one press conference per quarter. The market could read this development as hawkish, as it would increase the number of “live” meetings each year; indeed, the US dollar saw a quick spike after the Wall Street Journal reported that Powell was weighing that idea earlier today.

Speaking of the greenback, the dollar index is testing its highest level in a week after tentatively breaking out of a possible “bullish flag” pattern today. A more hawkish meeting, through a rise in the “dots”, more concern about inflation, or the announcement of more press conferences, could see the dollar index rise back toward its 11-month high near 95.00. On the other hand, another noncommittal, steady-as-she-goes interest rate hike (and little else) could disappoint some dollar bulls and take the greenback down toward last week’s trough in the lower-93.00s.

Source: Trading View, FOREX.com

StoneX Financial Ltd (trading as "FOREX.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, FOREX.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date.

This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it. No opinion given in this material constitutes a recommendation by FOREX.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although FOREX.com is not specifically prevented from dealing before providing this material, FOREX.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Financial Ltd. StoneX Financial Ltd is a company incorporated in England and Wales with UK Companies House number 05616586 and with its registered office at 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is authorised and regulated by the Financial Conduct Authority in the UK, with FCA Register Number: 446717.

FOREX.com is a trademark of StoneX Financial Ltd. This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy. FOREX.com products and services are not intended for Belgium residents.