Tonight’s FOMC: Dot Plot Could Shake Markets

The Federal Reserve is widely expected to raise interest rates by 25 basis points at today's meeting. If realized, this move would mark the first hike since July 2023, bringing the target interest rate to the 3.75%–4.00% range.

Interest rate markets price in a nearly 90% probability of a hike, up from around 70% prior to the latest inflation data. A Reuters survey also indicates that 86 out of 101 economists anticipate a quarter-point increase, with Goldman Sachs, J.P. Morgan, HSBC, and Deutsche Bank sharing this view.

Hawkish expectations intensified after August CPI and PPI data revealed persistent price pressures, while oil prices breached US$100 per barrel. Morgan Stanley even projects two hikes—in September and December—citing a slowdown in the disinflation process and robust demand driven by AI-related investments.

With the rate hike largely priced in, market attention has shifted to the "dot plot" and the press conference by Fed Chair Kevin Warsh. A dot plot signaling further hikes could push Treasury yields higher, whereas signals of an imminent pause might offer relief to bonds and risk assets.

Newsmaker Analysis: The key factor tonight is not merely whether the Fed raises rates by 25 basis points, but how Warsh characterizes the move. If the hike is framed as the start of a new tightening cycle, the dollar and yields could rise, while gold, stocks, and crypto face downward pressure. Conversely, if the move is described as a one-off calibration with policy remaining data-dependent, the market might interpret the decision in a more dovish light. (arl)

Source: Newsmaker.id