The FOMC rate decision is “one sleep away” and less than 24-hours away. The decision will take place at 2 p.m. The expectation is for no change in the target range of 5.25% to 5.5%.
The question that traders will be answering is “Will the no change be more hawkish or dovish or balanced?”. That bias will decide the short-term direction of the dollar, yields and stocks.
The dot plot and the central tendencies will be of focus. Recall from June, the dot plot targeted 5.60% as the end of your rate. That implies one more tightening between now and the end of the year. Most think that if there is a change it might be lower for 2023 (likely unchanged though). For 2024, the Fed consensus targeted a rate of 4.6% as the end of year rate. Will the Fed signal they plan to keep rates steady for longer going forward to snuff out the sticky core inflation? If so that end-of-year target rate might be raised.
The Fed will also give their expectations for central tendencies for employment, inflation, and GDP.
In the US debt market today, US rates moved higher and traded to the highest level going back to 2007 for the 5 and 10-year portion of the US yield curve. Although the Fed is expected to keep rates unchanged, the yield curve has done a good deal of tightening for the Fed since the last interest rate decision on July 26.
In the Forex market today, the CAD is ending the day is the strongest of the major currencies, while the JPY is the weakest (the BOJ will announce their rate decision on Friday with no change expected). The CPI data out of Canada today came in higher-than-expected helping to support the loonie. However, the USDCAD is trading well off its lows for the day (high for the CAD).
The USD is ending the day mixed to lower with declines of -0.27% to -0.30% vs the commodity currencies including the CAD, AUD and NZD. The Reserve Bank of Australia meeting minutes show that they contemplated a hike of 25 basis points which help to support the AUD today. The US dollar had smaller modest gains versus the EUR, JPY and CHF (it was near unchanged vs the GBP).
In the US stock market today, the major indices close lower part off their lowest levels of the day:
in other markets: