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Fed Decisions Focus on Markets
Market expectations are now at a tipping point as investors await the interest rate decision by the Federal Reserve (Fed) which will be announced early this morning.
Market expectations now show a 55% probability of a half-point (50 basis point) interest rate cut, but uncertainty still surrounds the extent of the Fed's next move.
The expectations of the Fed experienced uncertainty when the US economic data report, retail sales (Retail Sales) recorded a surprise increase, this matter is seen to be capable of complicating the decisions that will be made by policy makers.
From a market player's point of view, the key aspect is not simply the Fed's choice between a 25 or 50 basis point cut, but how investors react to the decision.
A cut of 25 basis points that is seen as modest could raise concerns that the Fed is putting the country's economy at an economic risk that is seen as increasing.
On the other hand, a larger 50 basis point cut can also worry investors, as it is an indicator that the Fed sees the economy as being in a more fragile state than expected.
At this time, the big question that remains is whether the world's investors will be confident that Fed Chairman Jerome Powell will be able to control the situation, no matter what the decision is taken.
Unusual Market Uncertainty Ahead of Fed Decision
While almost all investors are convinced that interest rate cuts are inevitable, the debate is now focused on the size and steps the Fed will take in the future.
For those expecting a 25 basis point cut, there is no clear consensus on whether the market reaction will trigger " risk-on " sentiment, fueling optimism in equity investments, or a " risk-off " reaction reflecting caution over the economic outlook. .
On the other hand, those who expect the implementation of a 50 basis point cut believe that a smaller cut will cause a " risk-off " reaction, indicating that the Fed's implementation is insufficient in balancing the market.
Thus, the press conference by the Fed will be critical. We will see the immediate implementation of a 50 basis point cut or a smaller step of 25 basis points, the Fed will likely try to convince market players that a " dovish " shift will not indicate the onset of an impending recession.
Instead, the Fed's focus will be on addressing broader challenges such as a sluggish labor market and slowing economic growth, without raising concerns about larger economic problems.
Balancing Market Sentiment and Economic Risk
Although the Fed is expected to start its easing cycle early in the morning, the current market situation is now seen as a potential " sell the news " reaction.
For example, the world stock market is seen to be at the " Overbought " level, this is seen to increase the possibility of " Profit taking " movement regardless of the Fed's decision.
If the central bank opts for a 25 basis point cut, it will likely be accompanied by dovish rhetoric, signaling that more aggressive cuts will be made if necessary.
However, we also think a 50 basis point cut at the start would be more logical, especially with rising risks in the labor market.
Finally, regardless of the size of the basis point rate cut that will be implemented early this morning, the action will need to balance efforts to address inflation concerns and the slowing potential of the United States economy.
As the market awaits the Fed's decision, market players are now seen to be in a difficult situation in view of the complicated Fed expectations, with the potential for high market volatility after the FOMC announcement.
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