What to Expect from the FED Meeting Today?

All the attention is at the FED meeting today, with expectations for a hint on the first rate cut which is anticipated to come later in Q1 of 2024. So, the FOMC statement and Powell’s press conference, however, traders are skeptical about Powell validating more than 100 bps rate decrease which is already priced into the FED funds curve.

After all, markets were expecting one more rate hike by the FED until the end of this year, but here we are at the end of 2023 with no prospect of one last rate hike today. So what’s all the hype about today’s FOC statement and dot plot when the market usually foreruns the Fed? Well, the market might have run too far with the cut predictions for 2024, so the direction of today’s move will reveal the FED’s willingness to lower rates, while they want to sound hawkish until they’re ready to do so. So, the likely scenario will be a bit more hawkish for the USD, than what we have seen in the last two months.

Earlier today Treasury Secretary Janet Yellen expects inflation to fall, although it will fall below 3% by the end of 2024, which makes projections quite conservative. The monthly CPI numbers at the start of this year stood at around +0.5%. CPI inflation is currently at 3.1% year on year.

So, a drop toward 2% is certain, and with Oil prices on a strong bearish trend, there is a strong reason markets expect that there’s a good likelihood of having very low headline CPI readings in 2024. But for today, chances are that the FOMC will be less dovish than what the market has been pricing in during the last several weeks. Although this has also been priced in, to some degree, so we’ll see how big the impact will be on the US Dollar.

EUR/USD Live Chart