CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What to expect from the Fed❓

09:44 16 June 2021

💲The US central bank has driven markets to records but it will face some challenging questions on inflation and asset bubbles.

When?

The FOMC meeting concludes with the decision released today in the evening at 7pm BST (8pm CET) and the post-meeting conference will begin 30 minutes later. The statement will be releases along with new macroeconomic forecasts and the dot-plot so there will be a lot of materials to focus on. Please make sure to visit the “News” section when we will provide the post-decision update.

What is the background?

The US economy is booming thanks to a massive policy support and inflation reached 5% in May. What is more, core inflation (ex food and energy) is at 3.8% - the highest level in nearly 30 years. While some of this is transitory (as the Fed likes to point out), high household incomes can exert an upward pressure on inflation for a longer time period and supply difficulties can last for months. Furthermore, the Treasury Department reduced its cash position flooding markets with liquidity and forcing Fed to carry record reverse repo operations to prevent overnight rates from sinking below 0%. All this in theory creates a perfect ground for policy tightening.

Retail sales remains much above pre-covid trend. Source: Macrobond, XTB Research

Please be aware that information and research based on historical data or performance does not guarantee future performance or results. Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

What to expect?

The “old” Fed would be already tightening the policy. However, this Fed has created every impression that they want to overheat the economy and the markets and see what happens. Any actual tightening at this meeting has pretty much 0% probability. Therefore investors should focus on two things:

  1. QE discussion – Chairman Powell said they would communicate any discussion regarding reduction of QE so the smallest pivot the Fed can do is to announce such discussion. Lack of it would be seen as very dovish
  2. IOER rate – record reverse repo operations reflect massive USD overliquidity that could be reduced by increasing rate on banks’ reserves (now 0.1%). That would be technical move but it would take away some fuel that is now pushing bond and stock prices higher – and this makes such move unlikely  

Markets to watch – US100

If there is one market that ideally reflects how markets feel about the FOMC decision it’s US100. High tech US stocks are being traded at record valuations partly because their business are growing but partly due to extremely accommodative monetary policy. Any change is therefore unwelcome for this market.

The impact of the FOMC decision will be seen on US100. Technically the trend remains clearly bullish after a large “abc” correction was completed in May. Source: XTB Research

Please be aware that information and research based on historical data or performance does not guarantee future performance or results. Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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