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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. 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 financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

FOMC meeting: three things to watch out for

The Fed meeting will provide markets with clues about the outlook for policy over the next eight weeks. Several key areas are worth monitoring.

US Federal Reserve building Source: Bloomberg

Interest Rates

Rates are expected to be lift unchanged at current levels, 2.5%, as the committee looks to judge the impact on the US economy and global markets. The Federal Reserve (Fed) policy took a dovish turn back in January with a speech by Fed chairman Jerome Powell, and the overall outlook has remained the same since then. Previously, markets had thought that there might be up to four rate increases this year, but now the median is two.

The lower expected path for core inflation means that the Fed is under much less pressure to maintain the pace of tightening, and as a result it seems highly likely that 2020 and 2021 will, for the moment, only point to policy being left unchanged, rather than a resumption of the Fed’s tightening policy.

Quantitative Tightening

The committee may even announce that its programme of reducing its balance sheet holdings, known as 'quantitative tightening (QT)', will be paused, giving the market time to absorb the tightening conducted thus far.

The Fed has reduced its balance sheet to $4 trillion from $4.5 trillion, but the continuation of this policy at the end of last year caused stock markets to drop dramatically. About 70% of US household assets are in financial markets, so any drop in stock markets will hit consumer confidence and retail sales. While the Fed does not have a mandate to prop up the stock market, it does have a requirement to maintain the US economy, and a drop in spending will hurt US economic growth.

Thus, we will see the Fed become very circumspect about continuing its QT programme, and it may even pause it for the time being.

Economic projections

Growth expectations will be key at this meeting, as investors face a world where US economic growth continues but Asian and European growth is slowing. This dichotomy is another problem for the Fed – the world economy is not their problem, but a slowdown will hurt the US too.

Trade wars are a chief problem, and the committee will not be able to get away without mentioning them to some extent. But the impact is still filtering through and with trade talks going on, there will be some hope of a resolution in due course.

US economic growth will likely slow in 2019, although not as badly as in other parts of the globe. Thus the Fed will look to be cautious and emphasise the policy tools at its disposal.

A softer outlook could see the dollar lose some ground, and caution about growth will not be an ideal scenario for equities, but a reminder about policy changes and possible loosening of policy might help the stock market.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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