Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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FOMC rate decision: How to trade the event
Saxo Strategy Team
What: FOMC rate decision
When: Rate decision and press release on March 20 at 18:00 GMT (19:00 CET) and post-meeting press conference at 18:30 GMT (19:30 CET)
Expectation: Interest rate maintained at 5.25-5.50%. Possible tweaks to SEP and some light on plans to taper QT.
How will the market likely react? Anticipated changes in the Summary of Economic Projections (SEP) will likely include slight upward revisions in growth and inflation for 2024, accompanied by a more scattered dot plot. The increasing uncertainty surrounding the rate-cutting cycle, stemming from a likely upward shift in median 2024 dot, may push US Treasury yields higher across the curve and the USD higher. In the event of a dovish stance whereby the dot plot still shows 75 basis points rate cuts this year without SEP revisions, we might see US Treasury yields fall. However, there's a risk that market scepticism about the feasibility of the Fed's commitment to the 2% inflation target could put pressure on the longer part of the yield curve.
The table below shows our views ahead of the FOMC meeting.
Why does it matter? The FOMC meeting is crucial for markets as it sets monetary policy, impacting interest rates and investor sentiment. Decisions made here shape economic expectations, influencing asset prices globally. Earlier this year, the market was pricing as many as seven US rate cuts, but recent inflation reports showing persistent inflation have caused the market to now only pricing in three rate cuts in 2024. Delaying rate cuts could prolong tight financial conditions, weighing on risky assets for an extended period.
The chart below shows the Bloomberg Economics Federal Reserve sentiment natural language processing (NLP) model. The index is underpinned by an NLP algorithm trained on Bloomberg News headlines, covering about 6,200 speaking engagements by Fed officials since 2009. Values below zero indicates that a rate cut is imminent so the model shows we are getting closer to a rate cut but also that the market was clearly misinterpreting the Fed earlier this year.
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