FOMC meetings: 2 things to know

• FOMC to maintain a positive view of things
• Future “dots” key for short term reaction
• Powell will be grilled over balance sheet, QE

The FOMC decision is obvious and well communicated – no change in rates for a foreseeable future. Also we expect no material adjustments in the statement. Therefore the attention will be drawn by 2 other issues:

1. Dot-plot

Dot-plot is the chart where policymakers tick their expectations of the future rates individually and it’s being published quarterly. Since the 2019 draws to an end, current year will be removed and the focus will be on 2020 and 2021. Do notice that markets expect one more cut next year while in September no single FOMC member saw rates lower than they are at present. This could change and the question is if this change is material. To cut the long story short if at least 3 dots for 2020 drop below current rates (1.5-1.75% range) markets would see this as opening the door for the cut. Such development would be negative for the USD and positive for Gold and stocks.

Will the dots move? Markets will be focus not on the median but on the lower part because they believe it’s where President Powell is. Source: Bloomberg

2. Balance sheet

The initial reaction will be driven by the Dot-plot but during the conference the attention will be on the balance sheet. The Fed has restarted increasing its balance sheet and while it’s not called QE, the extra money is here and it’s hard to argue that after some short break all three major central banks (Fed, ECB, BoJ) are pumping money again. At present the Fed has committed itself to purchasing bills until mid’2020 – any suggestion of extending the program would be a dovish sign, again: negative for the USD and positive for Gold and stocks.

No bull market without money print? Top3 central banks are doing this again. Source: Macrobond, XTB Research

Gold is certainly one market that could use more dovish Fed right now. Source: xStation5