Market expectations ahead of the announcement after the FOMC meeting tonight are very hawkish, so there is a possibility of missing the forecast.
There are two main expectations for the outcome of the FOMC meeting tonight. First, the tapering acceleration of the Fed's bond purchase program to USD25 billion-USD30 billion from the current tapering scale of USD15 billion. Second, the acceleration of the rate hike in the dot plot scheme by including two increases in the Fed's interest rates during 2022.
Market expectations are too hawkish that opens the opportunity for the emergence of a dovish surprise. For example, if the Fed only accelerates tapering without updating the dot plot, or the dot plot scheme depicts a one-time rate hike next year.
“We have never seen an FOMC meeting with such consensus in favor of a hawkish outcome,” MUFG Head of Research Derek Halpenny wrote, in a note to clients quoted by Reuters, “(Fed Chair) Powell may emphasize uncertainty in (policy) guidance to such an extent that tonight could dampen the (market) response... The room for a big move in the US dollar tonight may be limited.”
On the other hand, there is also a chance for a hawkish surprise. For example, if the dot plot projects more than two rate hikes by the Fed by 2022, or other major central banks make statements that are much more dovish than the Fed. It is noteworthy that the BoE and the ECB will announce the results of the policy meeting tomorrow, followed by the BoJ the following day.
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