What to expect from the Fed?

Already this evening, the results of the first meeting of the Federal Reserve System (FRS) of the United States this year will be announced. How the market will react to them will depend on three factors: a shift in the timing of monetary tightening, risk assessment and a rebalancing.

Increases in interest rates this time are hard to be expected, given the slowdown in the growth of the American economy and the recent "shutdown", which may resume in mid-February. However, this does not mean that this year the regulator will not increase the cost of lending.

According to most economists surveyed recently by Bloomberg, in 2019, the Fed will raise the interest rate twice, but it will be in June and December, and not in March and September, as was previously expected.

Meanwhile, the derivatives market is laid on the fact that until the end of the year the Central Bank will not change the cost of borrowing at all.

"Today, investors clearly expect Jerome Powell "pigeon" rhetoric. To avoid a repeat of last year's mistakes, the Fed chief is likely to be forced to balance between signals about a still strong economy, which allows us to expect an increase in interest rates later this year, and statements about a patient position," the experts noted.

"It is assumed that the regulator will retain the risk assessment as generally balanced and will make a choice in favor of a more vague wording about the need for a further gradual increase in the rate or replace it with a phrase about a patient approach. In addition, the US Central Bank seems to be thinking about suspending a reduction in its balance sheet. The minutes of the meeting will probably not talk about this, but the recent speeches of the FOMC representatives clearly hint at this. The main question is this: Has the market already priced these hints? If yes, then the strategy "buy on rumors, sell on facts" can work, and the dollar will grow. If not (and the head of the Fed will confirm the intention to curtail the program ahead of time), then comments on this topic may put pressure on the greenback," they added.