By Orbex
Tomorrow we have what is likely to be the biggest event for the markets this week. The Fed will release the minutes of their last meeting.
With all the expectations over what the Fed will do at its next meeting, there will be a lot of attention to the details of their last meeting’s discussion.
There is so much commotion over what the Fed will do, that over the weekend a rumor flew around that there was a “special” meeting yesterday to raise rates. In reality, it was a previously scheduled closed-door meeting.
The inflation numbers have been so dramatic lately that traders are on the edge of their seats in anticipation of what the Fed will do.
What the analysts are predicting
The question now isn’t whether the Fed will hike rates at the next meeting, but by how much.
Free Reports:
Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Download Our Metatrader 4 Indicators – Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
Reuters’ most recent survey shows that 52% of economists believe a 50 basis point hike is coming, and 48% say it will be only 25. The last time the Fed took such drastic action was in 2000 in the midst of the dot-com boom. And it came to an abrupt end a little more than a year later.
The market appears to be pricing in as many as 7 rate hikes this year. In turn, this would leave the funds rate at 1.75%, one of the sharpest tightening cycles in history.
With such a strong consensus that the Fed will tighten, there is an increasing possibility that the market could be disappointed by the tone of the minutes.
Let’s not forget that the meeting happened before the latest inflation figures. Specifically, it followed December’s disappointing NFP, and it was before the GDP figures were out. There were fewer reasons back then for the Fed to hike as aggressively as they might have to now.
It’s down to the vote and the projections
The Fed is likely to be just as wary of the potential consequences of aggressively raising rates in an economy that is still not on firm footing because of the pandemic.
Most importantly, omicron was the major theme in January. And there was no official talk yet of lifting restrictions and mask mandates. So, there are plenty of reasons to suspect that Fed members would have taken a more moderate tone in their deliberations than the market has factored in.
Probably the pivotal point will be what the vote was for increasing the taper. The vote could be overall unanimous. But if there were a significant number of dissenters, it could provide a significant dovish tone. It would mean that the Fed didn’t fully commit to ending the taper sooner, let alone start to raise rates.
Reading the tea leaves
On the other hand, what could turn the discussion more hawkish is if there was any discussion about raising rates in the near term.
If the FOMC was already talking about raising rates at the last session, it would a near certainty that it would happen at the next meeting.
That said, there could be some extra volatility as there is some subjective interpretation of what each member said during the meeting. Analysts will be looking to add up the potential votes in favor of a 50bps hike. And there can be uncertainty in parsing deliberately jargony comments.
Article by Orbex
Orbex is a fully licensed broker that was established in 2011. Founded with a mission to serve its traders responsibly and provides traders with access to the world’s largest and most liquid financial markets. www.orbex.com
- Fast fashion may seem cheap, but it’s taking a costly toll on the planet − and on millions of young customers Nov 25, 2024
- “Trump trades” and geopolitics are the key factors driving market activity Nov 25, 2024
- EUR/USD Amid Slowing European Economy Nov 25, 2024
- COT Metals Charts: Weekly Speculator Changes led by Platinum Nov 23, 2024
- COT Bonds Charts: Speculator Bets led lower by 5-Year & 10-Year Bonds Nov 23, 2024
- COT Soft Commodities Charts: Speculator Bets led lower by Soybean Oil, Soybean Meal & Cotton Nov 23, 2024
- COT Stock Market Charts: Speculator Changes led by S&P500 & Nasdaq Minis Nov 23, 2024
- Bitcoin price is approaching 100,000. Natural gas prices rise due to declining inventories and cold weather Nov 22, 2024
- USD/JPY Awaits Potential Stimulus Impact Nov 22, 2024
- RBNZ may cut the rate by 0.75% next week. NVDA report did not meet investors’ expectations Nov 21, 2024