Federal Reserve

This morning, the Federal Reserve followed the lead of the ECB last week to deliver a hawkish surprise. The Feds dot plots showed the median dot in 2022 rose to 1.875%, consistent with another six rate hikes in 2022, in line with market expectations.

Traders expect this week’s Fed meeting to be the proverbial “calm before the storm” of aggressive Fed tightening throughout the rest of the year - see what the possibilities are!

Overall, the BEA estimated that the US economy grew at a 3.2% annualized rate in Q1, well above expectations of 2.2% growth. While President Trump will no doubt extol the headline growth, the details are less impressive under the hood.

After a quiet start to the week, market-moving data has finally picked up, with traders keying in on three major events...

As we noted in yesterday’s FOMC Preview report, the US central bank was never going to make any immediate changes to policy, leaving traders to read Powell and Company’s tea leaves for implications about future tweaks. As it turns out, the tea leaves were clear: The Fed has undergone a major dovish shift.

Spoiler alert: The Federal Reserve won’t be making any immediate changes to monetary policy at the conclusion to this week’s two-day meeting. Nonetheless, it would be a mistake for traders to ignore the central bank’s economic projections and comments.

Today’s economic calendar is light on traditional economic data, but heavy on high-stakes testimonies with President Trump’s former attorney Michael Cohen, US Trade Representative Robert Lighthizer, and Fed Chair Jerome Powell all getting grilled by lawmakers, simultaneously. Michael Cohen’s testimony could have long-term legal ramifications for the President, but comments from the other two policymakers have more near-term significance for traders.

Today’s economic calendar is light on traditional economic data, but heavy on high-stakes testimonies with President Trump’s former attorney Michael Cohen, US Trade Representative Robert Lighthizer, and Fed Chair Jerome Powell all getting grilled by lawmakers, simultaneously. Michael Cohen’s testimony could have long-term legal ramifications for the President, but comments from the other two policymakers have more near-term significance for traders.

Despite a powerful winter storm forcing the Federal Reserve’s Washington DC offices to close, the central bank was still able to release the minutes from its late January meeting.

Friday’s jobs and wages numbers may turn out to be not so significant in terms of their potential market impact as investors will still be assessing the Fed’s apparent U-turn in its monetary policy stance – unless the data turn out to be significantly strong or significantly weak.

With seemingly every member of the Federal Reserve emphasizing that the central bank would be “patient” following its December interest rate hike, it came as no surprise that the Fed left interest rates unchanged today. And, despite the speculation that Chairman Powell and Company could revisit their balance sheet rundown strategy, the central bank was quiet on that front as well.

The FX markets have been rather quiet so far this week. However there have been a couple of exceptions.

Given that the Fed has already indicated that interest rates won’t be going up again soon, investors will be keen to find out first and foremost how long is the central bank likely to remain on hold. Another focal area for investors will be comments from Mr Powell on the pace of the Fed’s balance sheet reduction.

The minutes from each Federal Reserve meeting are released three weeks after the meeting itself, meaning that they’re generally stale under the best of circumstances...

Heading into arguably the last major market event of 2018, traders felt they had a decent grasp on what the Federal Reserve would do.