Fed paves the way for rate cuts but wants more evidence

  • Fed maintains rates but signals rate cuts
  • Dot-plot suggest 2 cuts in 2019 a possibility
  • Dollar slides, stocks slightly up

The Fed maintained interest rates unchanged in June but removed the “patient” stance from the statement, adding that uncertainties have risen and the Fed needs to act to sustain expansion. President Powell added during the post meeting conference that most members saw increased case for more accommodative policies going forward but the Fed wanted to see if these uncertainties indeed have an impact on the economy.

Source: Bloomberg

The most dovish sign in this is dot-plot, a projection of future interest rates that on one hand shows a divided Fed but 7 members seeing 2 rate cuts already this year do most likely include president Powell.
However, the July cut is not a done-deal and it might indeed depend on the outlook of the G20 meeting between Trump and Xi.
Macroeconomic forecasts have changed but while inflation forecasts for this year has been cut, some forecasts like growth or unemployment rate have been actually upgraded. Source: federalreserve.gov

Overall, the Fed prepares markets for the rate cuts that have already been priced in and because there is some uncertainty left, the market reaction is a bit ambiguous. EURUSD, stocks, gold are all slightly up but these moves are far from decisive. Having said this, US500 is just within 1.5% of the all time highs (source: xStation5).   

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