Written by Nour Eldeen Al-Hammoury
The big day is finally here, and all eyes are headed towards the Federal Reserve’s decision and Janet Yellen’s press conference. This event might have the biggest impact on the market this week, but that depends on the decision and statement. In this article, we will look at the possible scenarios as well as the most important factors in today’s decision and how they will impact stocks, currencies, and commodities.
Time of Release
There are various statements and figures to be released today
At 18:00 GMT+
- FOMC Economic Projections
- FOMC Statement
- Federal Fund Rate
At 18:30 GMT+
- FOMC Press Conference
- Q&A session
Economic Projections: the market is expecting a possible downgrade in inflation and growth forecasts, while unemployment rate estimates may decline further over the next few months.
FOMC Statement: the Federal Reserve’s tone is expected to be somehow dovish, but it is also likely to keep the door open for further rate hikes, possibly in December, or even next year. In all cases, the Federal Reserve is likely to maintain the same approach that it has referred to since raising rates back in December of last year.
Fed Fund Rate: the current market expectations point to no change at 0.50%, while the Fed Fund Futures point at a 54% chance for 25bps rate hike and a 46% chance for no change.
There are various scenarios for today’s decision, but in all cases, there will be a notable impact on all asset classes across the board.
- 25bps Rate Hike: despite the fact that estimates for a rate hike are low in today’s decision, we cannot rule it out of the possible scenarios. A dovish tone is more likely, as the Federal Reserve will try as much as possible to stabilize the market.
- No Rate Hike: this is the most possible scenario as the recent economic releases do not support the Federal Reserve’s case to raise rates. However, the Fed might come up with a hawkish tone, meaning that the Fed might keep the doors open for a rate hike in December.
- No Rate Hike With Dovish Tone: this is also another possible scenario. The global economy and the US economy are not growing enough to support higher rates anytime soon. Therefore, the Federal Reserve may switch back to the “wait and see” mode, awaiting further evidence before any rate hike. A dovish tone means the Fed will not consider raising rates this year.
- 25bps Rate Hike With Dovish Tone: another rate hike would lead to a massive selloff in equities and commodities while the US Dollar skyrockets. However, a dovish tone could limit the selloff in equities and the rally in the US Dollar, because future estimates for a rate hike will be on the downside.
- No Rate Hike With Hawkish Tone: holding the rates steady is set to have a positive impact on Equities and Commodities, and the US Dollar may lose some of its recent gains. However, such move will be limited as well because a hawkish tone would raise the market expectations for a rate hike in December.
- No Rate Hike With Dovish Tone: this would be the easiest scenario to trade. No rate hike with dovish tone would lead to a direct selloff in the US Dollar across the board, while equities and commodities add around 1% of gains.
What Matters In Today’s Decision
Traders need to be very careful with the Federal Reserve Chairwoman Janet Yellen’s press conference, as she could change everything. For instance, even if the Fed’s statement is dovish, and Yellen comes with a hawkish tone, the market will react to Yellen’s remarks more significantly in comparison to the Fed’s. Therefore, although traders need to read the Federal Reserve’s full statement, they should also wait and listen to Janet Yellen’s tone before taking any trading decisions.