The FOMC is widely forecasted to leave its benchmark rates unchanged today. Fed Chair Powell is also expected to convey a hawkish hold, though such commentary unlikely to bring the US rates debate to a conclusive end.
Today’s policy signals will feed into the market’s ongoing obsession over the Fed policy outlook, and may well trigger heightened volatility across asset classes.
Global markets need a good reason to awake from their summer slumber, with the VIX currently near pre-pandemic lows while the JPMorgan Global FX volatility index remains near its lowest since prior to the Fed’s first rate hike of this cycle in March 2022.
A rate hike shocker today, or an upward revision to the median dot plot, could trigger another leg up for the US dollar, and potentially drag gold and equities lower.
However, dovish surprises by way of Chair Powell declaring an end to the Fed’s rate hike cycle, or even a lower median rate in the FOMC dot plot, could be deemed cause for short-term celebration for risk assets.