On Wednesday, the Federal Reserve will announce its decision on monetary policy with a 25 basis points hike already priced in. Analysts at TD Securities point out that the tone of the FOMC regarding growth and inflation and the guidance on future potential hikes could be what moves markets.
Key quotes:
“We expect the FOMC to deliver a 25bp rate increase at its February meeting, down from 50bp in December. The FOMC is likely to emphasize that despite slowing the pace of rate increases it is still determined to reach the terminal rate projected in the Dec dot plot.”
“Markets are already priced for a 25bp rate hike, but pricing for coming months and the terminal rate remains less certain. The Fed’s tone around growth and inflation as well as guidance on further potential hikes could be market-moving.”
“USD is not as sensitive to STIR (Short-term interest rate) pricing, so a higher for longer stance may not resonate as much. USD is stretched, though catalyst for reversal by the Fed seems like a high bar. Parts of FX are displaying signs of rally fatigue however.”
