Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

FOMC Likely To Be Dovish

Published 12/17/2014, 07:14 AM
Updated 05/14/2017, 06:45 AM

The Federal Reserve is set to have its monthly FOMC statement shortly and markets will be paying close attention to Janet Yellen’s words. The market is poised to react to two key sides: Whether she is hawkish or dovish, the result will move markets and may even create some nice trading opportunities in the process.

Weighing up both sides can be quite hard, but looking at a hawkish result requires a few specific things, it requires a strong US economy and a willingness from Yellen to raise rates sooner rather than later. The things that may be supporting a hawkish response would be the recent positive data in retail sales (up 0.7% m/m); which have been much stronger than anticipated in the lead up to Christmas.

On top of this, we have had recent consumer sentiment data which has been very bullish – a positive sign in the world’s largest consuming economy – and leads to the possibility of Yellen being upbeat on the prospects of a consumer lead recovery. The unemployment figures have also been quite nice as of late and the recent non-farm payroll releases have been positive for the most part with the last reading very strong at 321K. Unemployment claims though have been a little disappointing, so that is something that could weigh on comments.

On the dovish side of things Yellen always finds a way, and PPI has been disappointing of late for the American economy. Recent data on PPI was down to -0.2%, an annoying movement for the Fed. But what is more of a concern for the Fed is general global trends, and the slowdown in developing economies. Not wanting to get trapped into the same sort of predicament, the Fed is likely to pay close attention to the global situation before looking to raise interest rates.

A large amount of QE in Europe is a likely even in the future, and the markets will be looking at the Fed for a rate rise which could see the Euro tumbling rapidly. On top of this you have a very weak oil market, which is generally positive for the American economy, but some global economies are suffering sharply as a result and US infrastructure investment in the oil industry is likely to slack off as a result.

What I do believe is that the FOMC statement will reiterate the strength of the US economy, however Yellen is likely to stay on the fence as the global economy looks to be slowing ever so slightly. With threats out there this dove is likely to keep rates as low as possible, until inflation figures pick up and the global economy improves.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.