Fed is widely expected to continue to slow down its tightening pace today, and raise interest rate by 25bps to 4.50-4.75%. The accompanying statement should clearly indicate that the work is not done yet on fighting inflation. Such message should be echoed by Fed Chair Jerome Powell in the post-meeting press conference.
Fed fund futures are now pricing in another 25bps rate hike to 4.75-5.00% in March. But the main questions are, firstly, whether rate will peak above or below 5% level, and secondly, for how long it will stay there. No concrete answer would be provided at least until new economic projections to be published in March.
Here are some suggested readings on FOMC:
- Will the FOMC Surprise the Markets?
- Fed Expected to Hike, But Then What?
- Fed Meeting Preview: The Magic Show of Interest Rates, Inflation, and Growth
- Is the U.S. Fed Nearing the End of its Record Hiking Cycle?
- Will the Fed Add a Hawkish Flavor to a Smaller Hike?
- Fed Preview: What It Takes for the Fed to Cut Rates
- January Flashlight for the FOMC Blackout Period
Overall risk sentiment has been resilient going into FOMC announcement. For now, further rise is in favor in S&P 500 as long as 55 day EMA (now at 3934.97) holds. Decisive break of 41.00.51 resistance will confirm resumption of whole rebound from 3491.58 low. Further break of 61.8% projection of 3491.58 to 4100.51 from 3764.49 could prompt upside acceleration to 100% projection of 3491.58 to 4100.51 from 3764.49 at 4373.42, even as a bear market rally. If that happens, risk-on sentiment would continue to cap any rebound attempt of Dollar.