Morning Brief – Dot dot dot

Dot dot dot

With the Federal Reserve’s interest rate decision looming large tomorrow, there is a significant risk that the Fed will fail to communicate sufficiently. Recently Powell and his fellow US rate setters have been reluctant to commit verbally to how they see the outlook for near term interest rates. Simultaneously, they have also been dissuading the market from reading too much into the closely watched ‘dot-plot’. Therefore, it could be time for the Chair to start talking and stop the dots from driving the show.

There is a near unanimous expectation for the Fed to keep rates on hold tomorrow. Observing market pricing and analysis, it would be remarkable for the Fed to take any action. If the Reserve still provides no clarity on its expected rate normalisation path, the market will have to navigate further economic uncertainty. Meanwhile, the looming threat of workers’ strikes and a potential government shut down will compound economic uncertainty with supply side and fiscal concerns respectively. 

As we observed last week with the ECB, short term rate expectations are still a major driver of spot pricing. It would be hard to imagine the FOMC setting out a roadmap for policy normalisation that might undermine current rate expectation. Therefore, Wednesday’s decision is unlikely to be the catalyst that pushes the Dollar back down from its current highs.

Discussion and Analysis by Charles Porter

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