First meeting since the December hike
The FOMC decision will be announced tomorrow at 2 PM. The Fed is expected to keep rates on hold. There is no press conference or change in central tendencies. We can expect just the statement where we will hear what the current thoughts of the Fed.
The meeting will also be the first with the new members participating. James Bullard, Esther George, Loretta Mester and Eric Rosengren will join the voting ranks this year.
Bullard generally flows with the wind and the economy - often zigging right before the market zags, but he is generally more hawkish (albeit with a few hedging words). It will be interesting to see if he changes with a vote this year.
Esther George has been a critic of Fed's easy policy. Mester was in favor of hiking before December but agrees with a gradual rate increases. Rosengren has been a bit less hawkish but has expressed support for gradual pace of rate increases.
Charlie Evans (hawk), John Williams, Jeffrey Lacker and Dennis Lockhart take seats in the "bullpen" (it is a baseball term - basically where relief pitchers stay). Apart from Evans who favored raising rates before December, the others voted with the Chair through 2015.
The expectations are that in 2016 the Fed would raise 4 times - at least that is what the dot plot suggested. With 8 scheduled meetings and 4 of them with press conferences, the Fed seems to have penciled in an every other meeting schedule. How can the market not think that? Of course that schedule is dependent on how the "economy evolves relative to our objectives of maximum employment and 2% inflation".
So how is employment?
Well, the one employment report the Fed did see was pretty darn good. The NFP rose by 292K - well above the 200K estimate and prior months were revised higher by 50K. On the wage side,however, the average hourly earnings were a damper to inflation concerns as they were unchanged. Other inflation measures this month were equally not supportive. The CPI for December came in weaker at -0.1% MoM and up only 0.1% ex food and energy.
And then there is the stock market and oil prices? We all know the story. Those two stories along with global concerns from China (their stocks were down 6.42% today), do not favor doing anything in any hurry.
There may be participants who are looking for a reactionary Fed statement with regard to stocks and oil, but the Fed felt they blew a chance to liftoff in September 2015, so I would not expect them to hit the panic button -especially with no presser this month. They did also leave plenty of wiggle room in the last statement:
"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal"
Yes oil and stocks tumbled but employment has not fallen off the cliff just yet. So status quo most likely and then onto the March 15-16 decision.
As for trading....the EURUSD started in a 56 pip range as NY traders entered and did not move out of it. The range for the month is the lowest since Nov 2014. I am still looking for a break at some point.
Today, the focus was on the GBPUSD and the USDCAD - two currency pairs which moved a lot in January. They each moved away from their extremes in trading today.
AUDUSD has inflation tonight. NZDUSD has their own interest rate decision after the Fed. The BOJ will also mix it up and there is come rumblings about more stimulus down the road.
SO the waiting game is on, with stocks and oil perhaps keeping traders interested until the decision. PS. and then there is the Apple earnings.
