FOMC Meeting Preview: A Patient Powell

01/05/2019

No change from the Federal Open Market Committee (FOMC) is expected later today, but there will be much focus on the world's most powerful central bank. Most important will be Jerome Powell's tone and what he says during the press conference with the market's exceptional bounce back from the depths, foremost in trader's minds.

Firm economic data and a decent earnings season have buoyed US stock markets, having suffered the worst December since 1931. Indeed, since the dovish turn by the Fed in March, we have seen a very solid GDP print, a labour market that remains resilient and wage growth at multi-year highs. The growing prospect of a US-China trade deal has also supported risk appetite. Core inflation too, stubbornly still below target, may be set to rise with gasoline prices up some 30% from the start of the year.

So, what is engaging markets is whether the Fed can continue to remain dovish looking, whilst watching over an economic outlook which has undoubtedly improved. Interest rate markets still imply a strong chance of an interest rate cut before the end of the year despite Fed officials still pencilling in a 2020 rate hike. 

With other central banks around the globe falling into line with the Fed, it will be interesting to see if Powell hints at any change in thinking, which would ultimately mean those all-time highs in stocks very quickly become a fading memory. 

We tend to think any major signals will be reserved for the June meeting with the accompanying projections. The Fed is data dependent and in neutral for now, having firmly set its stall out at the last meeting.

Aside from the press conference that will follow the statements, we note that there are numerous FOMC members (Evans, Clarida, Williams, and Bullard) who all have scheduled appearances on Friday, when of course we get the US employment data as well.

Here's our quick guide to the numbers the FOMC will be analysing:

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