Today, the Federal Reserve will release its monetary policy statement for the month. This is a highly anticipated release although no major announcement is expected to be made. The Fed will likely leave interest rates unchanged. Traders will however pay close attention to the accompanying statement that will give an indication of the December decision. The consensus for the December meeting is that the Fed will have another rate hike. This could change today depending on the statement that is released.
The Fed meeting comes when the US is at crossroads. Yesterday, the country went to the mid-term elections where the republicans continued to hold the senate while the democrats took back the house. In a press conference yesterday, Donald Trump called for bipartisanship. This will be unlikely to work because the two main parties have abandoned the center. This presents a major challenge for the country as investors wait for deadlock.
The Federal Reserve has also been accused by Donald Trump of working against his agenda. In previous statements, Donald Trump has talked about his regrets for appointing Jerome Powell as the Fed chair. This is because under his leadership, the bank has taken an aggressive stand on the pace of interest rates. This year, it has made three rate hikes and there is a high possibility that it will have another hike in December.
The US economy has continued to show strength in the past few months. Data released last week showed that the economy added more than 250K jobs in October. This was higher than the 130K that traders were expecting. The unemployment rate remained at 3.7% while wages rose by the highest rate in more than 10 years.
In the previous week, data showed that the economy expanded by 3.7% in the second quarter. This was a better-than-expected increase. It was slightly lower than the second quarter’s growth but this was expected.
At the same time, inflation remains above the 2.3% level. This is higher than the Fed’s estimate of 2.0%. Therefore, the Fed will likely justify making another rate hike in December. In 2019, it is expected to raise rates by three times before halting the increases in 2020. Analysts believe that the Fed’s challenge is that it is having problems coming up with the neutral rate.
Today’s decision comes at a time when the dollar is strengthening. As of this writing, the dollar index is at 96, which is slightly lower than the previous high of 96.8. It also comes as the earnings season is winding down. In the season, most US companies announced that the strong dollar was a major concern to them. This is because, as the dollar strengthens, other global currencies weaken leading to major currency headwinds.
The post What to Expect as the Fed Meets Today appeared first on Forex.Info.
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