Focusing on Powell Today Rather Than the FOMC Statement
Today the FED will hold its meeting, but while they're not expected to cut rates, traders will focus on comments from FED chair Powell
Today the FED will hold its meeting, but while they’re not expected to cut rates, traders will focus on comments from FED chair Powell, as well as the Dot Plot. However, we anticipate the dot plot to be less important this time, so we are trading the press conference from Powell instead.
FOMC Might Suggest Fewer Rate Cuts Than Previously Expected
The anticipation surrounding the dot plot at tomorrow’s Federal Reserve meeting may be overblown, considering it’s the only tangible figure the market can focus on regarding potential rate reductions of 0.50% or 0.75%. However, it’s important to acknowledge that most Federal Reserve members remain uncertain about their next steps, with a commitment to responding to incoming data.
The key focus will likely shift to Powell’s cues on his willingness to lower interest rates if economic conditions worsen. His comments at the Humphrey Hawkins testimony two weeks ago indicated a cautious approach, highlighting the need for more data to assess inflation trends. The FED chairman emphasized that while inflation didn’t necessarily need to improve, he wanted to see figures consistent with previous reports.
He also mentioned that the number of rate cuts this year would be contingent on economic conditions. If Powell reiterates this stance, it could be interpreted as dovish, aligning with market expectations of a rate cut in June. However, nuances in his statements could offer insight into whether the Fed plans to cut rates in June and then pause until December or beyond.
Trading the FED March Meeting Event
In terms of trading the event, the sentiment suggests selling risk assets on the FOMC statement, but then reversing the trade into buying risk assets such as commodity dollars during the press conference, particularly for stocks and bonds, which means the opposite for the USD.
Powell’s consistent trend of surprising the market with increasingly dovish stances since summer last year, suggests caution against betting against such a trend solely based on recent CPI data fluctuations. He will likely downplay the sticky inflation recently, which would send the USD lower, thus benefiting EUR/USD, AUD/USD and Gold.
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