Here we are, just one day before the big FOMC (Federal Reserve of the United States) meeting!
As of tomorrow, all speculations regarding the Fed’s decision on hiking or not hiking rates will be history. It is only normal to dedicate this article to the most anticipated interest rate decision in years.
The Fed did not move on rates even once since the 2008 financial crisis. Now in 2015, the whole debate is whether it will hike a quarter of a basis point or not. We’re not talking here about the start of a tightening cycle, but rather a small hike and a transition from an extra loose monetary policy to an easy monetary policy.
The Federal Reserve has always been viewed as the most proactive central bank in the world. As a consequence, it was the first major central bank to react to the 2008 financial crisis by slashing interest rates to zero in an overnight unscheduled meeting.
Needless to say that central banks all over the world followed the move and now, seven years later, a small rate hike is in demand on the back of one part of the mandate being fulfilled.
The Fed’s mandate is to keep inflation below or close to 2% and to create jobs. The second mandate is looking good, with the unemployment rate hitting 5.1% on the September release and NFP (Non-Farm Payrolls) posting more than seventy consecutive months in which the United States economy created jobs. The underlying problem remains with inflation, or actually, the lack of it.
Market participants are strongly divided regarding what the Fed will do and as a matter of fact, FOMC members are divided as well. Most of them attributed a fifty-fifty chance to any possible rate hike.
The Fed’s chairwoman, Mrs. Yellen, is known for being a dove, and her opinion will greatly influence the outcome of this meeting. If anything, I would say that the press conference to follow will make the US dollar move much more than the actual interest rate decision. This is because the press conference will be used to soften the tone of the actual decision.
All in all, be prepared for a wild week as the dollar index is still at elevated levels, and if Fed is indeed moving on rates, levels will be broken and volatility will be on the rise again.
As for US equities and how indices will react to any Fed outcome; that is a huge question & a mystery no one can answer. The key is the press conference to follow, as press representatives will question Mrs. Yellen in order to find out as many details regarding the decision.
We will forego Friday’s daily Binary Options Tip in favor of a Currency Trading update after this major event.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
