Market Participants Await Fed Decision

In just under 24 hours, the Federal Reserve will reveal its monetary policy decision for this month. We will also be given an indication of their plans for next year. While it is widely accepted that the likelihood of a fourth interest rate hike this year is high, analysts also believe Fed members will convey a much more dovish demeanor in terms of the rate hikes initiated in 2019.

Currently, the CME’s FedWatch tool predicts that there is a 72.3% probability that the Fed will, in fact, raise rates and implement that announcement at the conclusion of tomorrow’s FOMC meeting.

However, what market participants will be most attentive to is the statement released. They will look for clues or indications as to the pace of next year’s rate hikes vis-à-vis its monetary policy. Specifically, they will be searching to see if additional language has been put back into the statement which indicates that rate hikes next year will be data dependent as opposed to a static number of rate increases as conveyed through the Fed’s “dot plot.” They willl also use the term “Normalization” in reference to the current Fed funds rate. If rate are “at” or “close to normal” it will mean that very few rate hike are needed next year.

Recent volatility and deep declines in U.S. equities abound as traders focus on a slowdown in the global economy, the current trade war between the United States and China, and an aggressive Federal Reserve which raised rates as many times this year as it has since 2015 to 2017. Considering that the Federal Reserve has raised Fed funds rates a total of eight times since it began their monetary policy of quantitative normalization, this year is highlighted by the fact that the Fed has become much more aggressive when compared to the prior two years.

The Dow Jones Industrial Average and Standard & Poor’s 500 are currently on pace for one of the worst Decembers since 1931. For the first time in three days, the Dow is trading higher. However, as of 4:40 PM Eastern standard time, it is only up 83 points which is well off of today’s high which took the Dow within striking distance of 24,000 as it traded almost 400 points higher.

The dollar continues to hold onto its recent gains, with the dollar index currently trading at 96.56, in essence, unchanged on the day. Gold futures are exhibiting fractional gains today with the most active February Comex contract trading up $1.20 and fixed at $1,253 per ounce. Spot gold is faring much better today and currently exhibiting gains of $3.50 of which the vast majority is related to traders bidding the precious yellow metal higher.

However, gold is the only precious metal to be trading higher today with silver, platinum, and palladium all exhibiting declining prices.

Tomorrow’s Fed decision could create some real volatility and price swings if in fact the Fed raises rates and at the same time balances that decision with a much more dovish demeanor regarding their monetary policy next year.

Wishing you as always, good trading,