No Rate Hikes Expected: January FOMC Preview

FED interest rates futures market es ym nq

With the Federal government temporarily opening, the markets can focus on other factors for now.

Most immediately, the Federal Open Market Committee must decide whether it will adjust the target federal funds rate at the conclusion of their meeting tomorrow.

Most circles seem to believe the Fed will retain their “patience” at the end of this week’s meeting and leave rates unchanged. Given the multitude of news drivers currently in flux, it would seem prudent for Powell and the rest of the committee to delay any changes.

Markets are so confident in this sentiment, the CME FedWatch tool currently has a 100% chance of no hike. While the outcome is never certain until the time comes, this does seem to be a pretty sure bet given the current market conditions.

The statement released by the committee following the meeting will be important to decipher as it will indicate their economic outlook for the next several months. With some feeling the economy may be on the precipice of a possible recession, the Fed will likely remain cautious with their comments. Phrases like “exercise patience” and “dependent on the data” will likely be present. This is not to say the committee is just kicking the ball down the road, but that there are many variables for the members to consider.

In addition to the FOMC meeting this week, international trade tensions continue to be a factor on trader’s minds. An executive Chinese trade delegation arrived in Washington today to try and resolve the trade war before the March 1st deadline, at which time tariffs are set to rise to 25%. Those discussions will be ongoing this week and will likely move markets once completed.

Although this meeting is expected pass with little excitement, there is always the possibility of a surprise. Markets will move in an extremely rapid manner should that come to pass. Traders need to have a plan in place to manage their risk according to their own tolerances.

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