Tuesday, 7 March 2017
How to trade Fed’s March meeting
Here it is… We have been waiting for Federal Reserve Chair Janet Yellen to confirm it and so she did it. A March rate hike is now officially on the table and market will have to react on it one way or another. As usual, there are two alternatives, either you keep a wait-and-see approach until the meeting concludes or you anticipate Fed’s next move and take hell of a profit (or loss).
It is true. We cannot tell you what will actually happen next March 14-15 inside the meeting room of the Federal Open Market Committee, although we can remind you of a few facts that would help you decide on what’s your best positioning choice for this event.
Yellen’s Hawkish Rhetoric
Fed Chair Yellen has opted for a more hawkish rhetoric since Trump was confirmed as President of the United States. Why? Well... that’s a long list of things to consider, but we could simply say that Trump economic policies point to a suitable environment for higher rates, together with promising consumer inflation and improving labor market conditions.
"Indeed, at our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," said Yellen in Chicago only last week.
FOMC Officials Turning Bullish
But Yellen was not the only official taking the microphone last week. There were quite a few other FOMC representatives expressing their view on monetary policy future. Far from those who usually support the monetary normalization process, markets were surprised by a hawkish turn of dovish speakers. No better example than Governor Lael Brainard remarks at Harvard University last week.
“We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time,” said Brainard while adding that “risks to the outlook are more balanced today than they had been for the preceding two years,”
Economic Data Context
Inflation and employment are both key indicators that the FOMC keep monitoring to decide rate moves. So far, both have displayed a positive trend and hopefully, will continue to do so in the near future. Last month, the Labor Department reported a larger-than-expected 0.6 percent following a 0.3 percent increase in December. As for employment, february figures will be available by the end of this week at 13:30 GMT.
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