Optimism ahead of Fed decision

The Fed meeting on Wednesday promises to be the highlight of the week, particularly in light of the events of the last 24 hours.

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Between Trump announcing that he will hold a prolonged meeting with Xi next week, piling more pressure on the Fed to cut rates and criticizing the ECB President for hinting at further stimulus, the attention on today’s Fed meeting has only increased.

The central bank is now under considerable pressure, with the White House so unhappy at the job that Powell is doing that it has reportedly considered demoting him, despite Trump having been the one to hire him in the first place. These tactics didn’t work too well for the President last year, with the Fed raising interest rates four times despite huge pressure being publicly applied.

Will they do the same again and reassert their independence or will the memory of the previous policy mistake force their hand, calling into question how much influence the President is having on their judgement and decision making. One thing is clear, the current relationship is not healthy and is likely to lead to more bad policy decisions and questions around its independence.

Fed Interest Rate Probability

The announcement regarding the meeting next week may buy the Fed some breathing space today but that puts even more scrutiny on the language of the text, the press conference and the economic forecasts.

The Fed will likely indicate a willingness to cut interest rates if necessary but will it hint at doing so next month? And what will the dot plot say about their plans for the rest of the year? Not that we can read too much into them given how much hands on trade talks between the US and China.

 

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