Market participants have been highly anticipating the week ahead ever since the Federal Reserve (Fed) signaled its willingness to lower interest rates to combat uncertainties in the global economic outlook. This week’s two-day meeting will conclude with an announcement and press conference around 2:00 p.m. EST on Wednesday — both of which will be closely scrutinized.
For the first time in a decade, the expectation is for the Fed to lower rates, likely by 25 basis points (bps). Another possibility, albeit small, is for the Fed to reduce the federal funds rate by 50 bps. This expectation of a 50 bps cut has been falling in recent weeks as economic data continues to indicate economic growth in the 2% range. The most unlikely possibility is that the Fed keeps rates unchanged and signals a future cut due to economic growth.
No matter the decision on interest rates, the post-meeting press conference will be full of important information about the Fed’s outlook for the economy and inflation. I continue to expect that the more dovish the commentary, the better for risk markets. The Treasury bond market’s reaction is much more difficult to predict, however, and may be more of a change in the shape of the yield curve than a large move in interest rates.
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