FOMC meeting preview: is a pause coming?

FOMC meeting date

The Federal Reserve officials are scheduled to gather at the FOMC meeting on June 13-14. The primary focus will be on the forthcoming announcement of the new interest rate decision, accompanied by the release of the Fed's updated economic projection.

Key Factors Influencing the Fed's Decision

Undoubtedly, inflation serves as a primary determinant for the Federal Reserve's interest rate decision. The Fed's stance on interest rates will be based on its assessment of the nation's inflationary trends.

In the statement released following the May meeting, the Federal Reserve acknowledged that "inflation remains elevated." Despite key data published in May indicating a slight easing of price pressure, it has proven to be more persistent than anticipated. The ultra-tight labor market continues to serve as a significant source for ongoing inflationary pressure. For instance, although the unemployment rate edged up in May, the Non-farm payroll recorded its highest figure in four months, surpassing the forecasted 190k by a considerable margin.

FOMC meeting expectation

Starting from March 2022, the Federal Reserve has consistently increased interest rates at every meeting, resulting in an unprecedented cumulative increase of 500 basis points. But following FOMC meeting in May, Fed Chair Jerome Powell signaled a pause in this relentless cycle of rate hikes. Consequently, the market has now factored in a minimum 70% probability of a rate pause in June.

Despite a potential pause, market participants do not anticipate an end to the tightening cycle just yet. Several Fed officials have encouraged investors to prepare for a rate hike in July, with the likelihood of another increase in the future. The current probability, according to the CME FedWatch Tool, stands at 54% for a 25 basis points hike in July. Meanwhile, the anticipation of early rate cuts later in the year has diminished.

In addition to the interest rate decision, the Federal Reserve's economic projection is another must-watch. In the June meeting, the Federal Reserve will reveal its revised outlook, which encompasses forecasts for key economic indicators such as gross domestic product (GDP) growth, unemployment rates, interest rates, and inflation.

In the previous meeting, the Fed projected a deceleration in real GDP growth during the second and third quarters before a "mild recession" beginning in the fourth quarter of this year. The upcoming economic projection will shed further light on the Fed's assessment of the economy's trajectory and provide a roadmap for future monetary policy.

US Dollar Technical Analysis

The Federal Reserve's stance in the June’s meeting will significantly influence the US currency, which has recently retraced from its three-month-high. Observing the daily chart for the greenback, it appears to be ready to retest its 20-day simple moving average. A definitive close above the resistance level of $103.50 would establish it as a support area.

Conversely, in the event of a dovish Fed and subsequent market retreat, the level to watch would be the 50-day simple moving average, situated around 102.68. Should the currency continue its decline, this level could come into play as a potential target. The outlook of the Fed's next move will be crucial in determining the future direction of the US currency.

S&P500 Technical Analysis

The S&P500 index recently entered a bull market, reaching a nine-month high. The daily chart indicates a strong upward trajectory, with the next challenge for the price expected to be at the level of 4340. As for support levels, the previous high in August is likely to serve as an immediate support level. Looking ahead, the 20-day moving average is seen as the next critical support level to monitor.