The last Fed meeting of 2019 will take place between
December 10-11, and investors believe the Central bank will keep interest rates
unchanged. How will this expected decision affect the financial markets and Forex trading?
Here are some key facts about December’s Federal Open Market
Committee meeting.
2020 monetary policy
The Fed’s updated insights into the future of the monetary
policy will be released at the December meeting. Officials should offer more
detailed info regarding economic projections, which could help investors see
the bigger picture in the longer term.
This decision might be exciting to hear if not for anything
else but any signs of hawkish views. There are still voices that favor a Fed
rate hike, although not too many. Nevertheless, the broader the outlook, the
better.
The Trade War
On the other hand, some people suggest no amount of rate
cuts can have much effect on business spending until companies have a clear
direction about how to approach the trade war’s repercussions on the markets.
Analysts suggest there's still about 50% odds that rates by mid-2020 will be
right where they are now, and even a year out, there's a pretty good chance for
rates at current levels.
Previous FOMC Meeting Minutes
The U.S Central bank had cut interest rates by 25 basis
points late October, citing slowing economic growth and uncertainty regarding
trade tensions and geopolitical risks. These adjustments put the current
federal funds rate target range at 1.50% to 1.75%. It was the third rate cut
this year alone.
Minutes released at the end of November from the Fed’s most
recent meeting showed that nobody from the Federal Open Market Committee (FOMC)
wanted to lower rates any further for the time being. That backs up what some
financial analysts have been saying about the Fed wanting to step back and
watch for a while to see how the 75-basis point lowering impacts the economy. Rate
cuts can take some time before they start affecting currency pairs such as EUR/USD or USD/JPY and other financial sectors,
as well.
Besides the above mentionedtiu argument, the Fed remains
committed to meeting its declared inflation goal around 2%, which it sees as a
sign of sustainable growth. Plus, inflation around that level allows for
increased mobility if things go in an unexpected direction.
Conclusion
Although the Fed looks poised to keep interest rates right
where they are, there are still some important things that traders should be
looking for on December 10-11. Amongst those, we have the new insights into the
next year’s monetary policy, which can prove crucial to the country’s general
economic outlook. Additionally, it will be interesting to see how U.S’ Central
bank decisions affect the big companies taking into account the ongoing trade
war with China.
Sources: cnbc.com, forbes.com, marketwatch.com,
thestreet.com,
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