The FOMC is finally upon us so what will they give us this time?

The financial world has been going FOMC crazy and here's a roundup of some of the stories we've brought to you recently;

  • ANZ expect a rate hike from the FOMC ... but beware a government shutdown
  • Mitsubishi UFJ says no FOMC hike this time
  • Citi has 2 FX plays for trading the FOMC
  • JPMorgan says the FOMC decision on Thursday is a coin flip
  • RBC "holding out hope" that the Fed will hike this week. Goldmans still looking at December
  • Goldman Sachs previews the Federal Reserve decision on Sept 17
  • Five Federal Reserve scenarios from Credit Suisse
  • Here are the real odds of a Fed hike on Sept 17

Adam also picked some very good bones from the Fed minutes

  • The crucial question in the FOMC minutes

  • Fed Minutes leaked early: Most Fed officials said hike still not warranted by conditions approaching that point

Yellen & Co have previously said they wanted to see more from the economy and have pinpointed, housing, jobs and wages, so how have they all done since the last meeting?

Jobs

Wages/Incomes

Real Average weekly earnings y/y

Housing

Inflation is always a big topic but as highlighted by Adam's post above, may be something the Fed are willing to give a little bit of leeway to. Here's the CPI picture right up to yesterday

And so to the economy as a whole

The big questions is whether the US is in a better place than it was in June and July

On the face of it there's been improvements but they've been steady and not spectacular. Unemployment continues to fall, wages and incomes are rising, housing is steady, Core CPI is holding up, GDP is steady. In fact, "steady" is probably the correct description for the US economy right now.

Is "steady" enough for the Fed to hike rates today?

Based on their recent rhetoric, no. The issue I have is that they've pulled a different 'must do better' rabbit out of the hat at the last few meetings. They are reeling out the excuses as to why they don't want to hike. That might be seen two ways;

  1. They're really not sure about the economy
  2. They want to wait until the last possible moment before raising

At some point they will run out of those types of excuses and repeating them will have the market thinking that they'll never hike unless things start to boom, and that's not going to happen. The market has been very patient with the Fed and it's not normally a patient creature. At some point it's going to say WTF? to constant excuses of why they're not hiking

I'm on the fence as to whether they hike or hold today. As above they don't seem to be in a rush but then when will be a good time? I already think they've missed the boat

What we do know is that each meeting that goes by without hiking the more expectant the market gets next time, and the greater the volatility is. It's a pressure valve building and if the Fed are worried about market ripples from their actions then they need to be aware of the potential monster they're creating. It's going to be messy whatever they do but markets will get over it and settle themselves down into the next trend, whatever that may be.

For trading it we've got to be careful. I still think the best trade will be after a hike, unless you're already long USD into it, but even then I'd be cautious. There's a lot of people waiting for this potentially last blast in the dollar and the resulting exit could be very messy. I'm still long from my BOJ dip and have got the nice buffer I was hoping for. I've locked my profit in at 119.90 and will move that right up to 120.50 (or thereabouts) into the meeting. I'm also going to think about taking half off just so I've got some profit banked

For trading over the meeting, that's going to depend on the details and what's said at the presser but lets look at the possible outcomes;

  • No hike and a dovish tone will sink the dollar sharply but we know it likes to come roaring back
  • No hike but a hawkish tone and longs can ride the train a while longer
  • Hike and dovish on future hikes and it might be time to ride the kneejerk and then pull the parachute chord
  • Hike and hawkish on another quick hike and a jump might last a few sessions

Either way, both sides of the trade are going to be watching very carefully. Best of luck to you all and stay safe

All eyes on the old girl at the Fed