Talking Points:
-The Fed held rates at this afternoon’s FOMC meeting.
- The Fed did reduce the dot plot matrix, or expectations for future rate hikes, and this has brought considerable volatility into markets. Key themes being USD weakness, Yen strength, Gold and Equities strength.
- Trading around such news can be dangerous. If doing so, please address risk management.
This afternoon’s widely awaited Federal Reserve meeting brought no adjustment to interest rates as the Fed elected to hold at this meeting.
But we did get a reduction in the Fed’s Dot Plot Matrix, and as we mentioned in our market talk article this morning, this would likely set the tone across capital markets. The dot plot matrix is the median expectation of the ‘central tendency’ for rates for the coming quarters. In Central Bank-speak, this means where each member of the Fed expects rates to be in the not-too-distant future. This had previously been a major sticking point for markets as the Fed has stuck to a rather aggressive forecast for four full rate hikes for 2016 in their most recent batch of projections in December 2016. At that meeting, the Fed hiked rates, but the accompany projections looking for four full hikes in 2016 appeared to be too much for markets to bear with the concurrent risk factors of China and Oil.
The initial reaction across markets did not disappoint; US Dollar weakness was, of course, a predominant theme as traders sold out of the Dollar on the back of these lowered expectations from the Fed. This has also led to a considerable rally in Gold, which is continuing to throttle higher as of this writing. And Yen strength is showing with considerable aggression.
Created with Marketscope/Trading Station II; prepared by James Stanley
This could be a positive for stocks as it assuages one of the primary risk factors facing global markets at the present. Much as we’ve seen over the past 8 years in the post-Financial Collapse environment, considerable risk can be absorbed if the world’s largest Central Banks are actively supporting markets. And the Fed’s response today, reducing rate hike expectations, is a clear sign that they’re responding to capital markets.
--- Written by James Stanley, Analyst for DailyFX.com
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