What: FOMC rate decision
When: Rate decision and press release on May 1 at 18:00 GMT (20:00 CET) and post-meeting press conference at 18:30 GMT (20:30 CET)
Expectation: Interest rate maintained at 5.25-5.50%
How will the market likely react? The recent hot data points across CPI and PCE combined with the US economy still consistently growing just below trend growth could force Powell to make a hawkish pivot. However, with the market momentum leaning in that direction, the real surprise lies in a dovish interpretation, if Powell reiterates the Fed’s forecast for three rate cuts, which would likely cause a significant risk-on sentiment across all asset classes and ease global financial conditions through a weaker USD. The most important hawkish message since last meeting has come from Austan Goolsbee saying that “progress on inflation has stalled” which means that the economy has adjusted to the current level of interest rates without solving inflation in a meaningful way. There are not many data points that point in favour of a cut, but the strong USD could cause a negative boomerang effect into the US economy through financial instability in the Asian region. In any case, while no rate change is expected the press conference will still be a key event that will impact markets. Read Althea Spinozzi’s, Head of Fixed Income Strategy, FOMC preview.
The table below shows our views ahead of the FOMC meeting.
Why does it matter? The FOMC meeting is crucial for markets as it sets monetary policy, impacting interest rates and investor sentiment. Decisions made here shape economic expectations, influencing asset prices globally. Earlier this year, the market was pricing as many as seven US rate cuts, but recent inflation reports showing persistent inflation have caused the market to now only pricing in one rate cut in 2024, scheduled for November.
The chart below shows the Bloomberg Economics Federal Reserve sentiment natural language processing (NLP) model. The index is underpinned by an NLP algorithm trained on Bloomberg News headlines, covering about 6,200 speaking engagements by Fed officials since 2009. Values below zero indicates that a rate cut is imminent. The recent direction in Fed speeches have been that of higher for longer and some non-voting member Dudley has sounded particularly hawkish saying the market is completely wrong on inflation long-term.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
