Top Story

FOMC Recap: Hawkish Cut Delivered, Punters Ponder Powell’s Pontificating

As we noted in yesterday’s FOMC Preview report, the Fed has an unblemished record of meeting market expectations over the last decade, so today’s decision to cut interest rates by 25bps to the 1.50-1.75% range was hardly a surprise for traders.

Going a step further, most traders expected a so-called “hawkish cut,” where the central bank seeks to tamp down expectations for future interest rate reductions. The statement supported this outlook in two primary ways:

1.      Removed phrase stating that the committee “…will act to sustain the expansion…”

The only substantive change the committee’s monetary policy statement was to remove the phrase its used to hint at interest rate cuts in the past. With this tweak, it’s clear that the Fed views its “mid-cycle adjustment” as complete and that any further interest rate cuts will be in reaction to slowing economic data.

2.      Bullard’s dovish dissent disappears

After dissenting in favor of an immediate 50bps cut to the Fed Funds rate last month, James Bullard joined the majority in voting for just a 25bps cut this time around. Meanwhile, the hawkish voters (Esther George and Eric Rosengren) still preferred rates to remain steady, meaning that in aggregate, the central bank may be leaning toward leaving interest rates unchanged it December as it currently stands.

Source: FOREX.com

In the immediate reaction to the Fed’s decision, traders trimmed bets on an interest rate cut next month, with the CME’s FedWatch tool now showing the market-implied odds of such a move dropping from 27% to 22% ahead of Fed Chairman Powell’s press conference. In terms of market moves, we’ve seen the US dollar tack on about 10 pips against its major rivals and yields on US treasury bonds tick up 1-2bps.

In his prepared remarks, Chairman Powell has noted that monetary policy is “in a good place now,” supporting the notion that any further cuts will require deteriorating data. Stay tuned to our twitter account for further actionable takeaways from Powell’s presser!


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT