US FOMC Interest Rate | April 27, 2016 | Currency Trading

Event Details At-A-Glance:
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US FOMC Interest RateUS FOMC Interest Rate decision today is the main focus of the week, but with most Fed officials and the market in general expecting no action today, any deviation from that expectation will cause a huge market correction that could last days or even weeks…

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2:00pm US FOMC Interest Rate Forecast 0.50% Previous 0.50%
DEVIATION: N/A

Let’s take a look at the prior changes for last FOMC Statement as our basis for today’s FOMC Statement.

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*BOLD [ ] INDICATES CHANGES.

March 16, 2016  –  FOMC Statement Analysis

Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months [revised from “economic growth slowed late last year”]. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft [revised from “moderately increasing”]. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market [revised from “points to some additional decline in underutilization of labor resources.”]. Inflation picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low [revised from “declined further”]; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks [revised from “closely monitoring global economic and financial developments”]. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely [does NOT restore language about confidence in reaching inflation target].

Against this backdrop [revised from “given the economic outlook”], the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

 In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent [George new dissenter].

Here’s what the “Fed Whisperer” said recently:

(US) Fed watcher Hilsenrath (WSJ):

  • FOMC reduced expectations for expected tightening this year to 0.875%, implying 2 rate increases vs 4 prior forecast – 2017-end now seen at 1.875% and 2018-end at 3%
  • Long-run expectations for Fed Funds now seen at 3.25% vs 3.5% prior
  • Latest statement see officials more inclined to wait for clearer picture of outlook; Makes April a “high hurdle”, but not impossible.
  • Projections were more pessimistic on GDP, more optimistic on employment.
  • New projections are now much more inline with market expectations; Futures markets were placing 35% chance of 1 rate increase this year and 30% for 2 hikes.

Considering all of the facts at hand, I expect to see no further policy action today.  Global inflationary recovery is still dragging on, despite recent gains in crude prices on the back of potential production freezes by OPEC and Non-OPEC nations, therefore the FOMC is very likely keeping a wait and see stance this meeting…

Here are some potential scenarios:

  1. If Feds talk about easing or explores the option of negative interest rates: Equity markets will be ecstatic and rush to sell USD.  I would be going LONG on EURUSD and short USDJPY immediately…
  2. If Feds maintain the current policy: We’ll probably see very little response as this is the current expectation.
  3. If Feds talk about hiking rates further soon: We’ll probably see USD strength but the degree of gains will depend on the tone and language used in the statement.  Most likely we’ll see a cautious approach, especially after last Unemployment Rate rise unexpectedly to 5.0% (from 4.9%).

 

Thanks,




Currency Pair Stats
Pair2H50+2H50RangeDirectionPN30PN60PN90Spike
AUDUSD39.4%75.0%5896.0%13222622
EURUSD55.6%95.8%7394.9%19323530
GBPUSD52.5%83.3%7194.9%21354125
NZDUSD43.2%58.3%5993.8%13222619
USDCAD35.4%50.0%5297.0%16252917
USDCHF48.5%54.2%6594.9%20343826
USDJPY37.4%33.3%5193.9%16262923
2H-50+ = % of 50+ pips move in 2hrs. | 2H-50 = % of 50+ pips move in 2hrs. for the last 2 years | Range = average range in 2 hrs. | Direction = % match following news direction | PN30 / PN60 / PN90 = average pips move before news release in 30, 60, or 90 mins. period | Spike = initial average spike
About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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