Today, the Fed will conclude its two-day meeting and announce the interest rates. The Fed is expected to raise interest rates for the first time under Jerome Powell. As shown below, most analysts expect the Fed to hike by between 150 and 175 basis points while a small number expect a hike of between 125 and 150 bps.
When there is such consensus about rate hikes, the big news will not be about a rate hike but the outlook that will come from the Fed officials. Instead, the traders will focus on the policy statement, updated forecast, and the press conference to be held at 1430 Eastern Time. This will be his first policy statement as chair.
The first thing traders will want to know is the Fed’s economic outlook. In the last December meeting, the economy seemed quite solid and so, the statement matched the economy at the time. However, more things happened before the year ended. The Trump administration signed into law a new tax reform policy that lowered corporate and individual taxes. At the same time, the legislators increased stimulus by increasing federal spending. Therefore, in this meeting, traders will want to know the Fed’s view about the stimulus.
Second, traders will measure the hawkish view of the Fed chair. In his statement to legislators last month, Jay Powell sounded more hawkish by forecasting four more rate hikes this year. At the time, traders were expecting three hikes. However, the inflation data released early this month removed the pressure of the chair to hike. The data showed that inflation eased in the month of February eased.
Third, traders will look at the Fed’s statement and dissect it for changes. They will want to read the tea leaves and find any changes that might be in the statement. Most traders don’t see many changes because the officials increased their optimism about the economy. They will also likely mention that they expect inflation to move up this year as the job market tightens. A key change that could move markets would be a change to the view on near-term risks. The most probable risks would be the new trade tariffs that were announced by the president. Traders will want to view the Fed’s opinion about these risks.
Fourth, traders will look at the press conference with a view of analyzing the attitude of the Fed chair. Since this will be his first statement, they will want to know his views and how he communicates with the market. Most importantly, they will want to hear his previous statement that ‘headwinds have become tailwinds’. What will it mean for the markets and future of forward guidance?
Finally, they will want to hear his opinion on the balance sheet. In this, they will want to know what he thinks about the pace of shrinking the massive balance sheet.
Meanwhile, the Reserve Bank of New Zealand (RBNZ) will also issue its interest rate decision. The officials are expected to leave rates unchanged following a disappointing quarter. Still, traders will want to know how the officials plan to implement hikes later this year.