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The Federal Funds Rate Announcement: How Will it Impact Markets?
BY TIO Staff
|September 17, 2024The Federal Reserve's anticipated Funds Rate announcement on Wednesday 18th September 2024 has been the topic of much conversation among analysts recently. As US inflation eases, the forecast is for the Fed to reduce the federal funds rate by 25 basis points this week. However, a 50 basis point cut is also being talked about as a possible scenario by a minority of economists.
Keep reading to learn more.
Federal Reserve's Expected Actions
The Federal Reserve is expected to make a significant policy move this week by lowering the federal funds rate. This major event could potentially have far-reaching implications for the broader economy.
The consensus among most analysts as indicated on our economic calendar is that the rate will likely be cut by 25 basis points. However, a minority think that a 50 basis point cut would be more beneficial under current economic conditions. The Fed has been maintaining high rates to combat inflation for quite some time now, but with inflationary pressures easing to the Fed’s target rate, the central bank appears ready to cut rates.
US Economic Outlook
The broader economic outlook remains cautiously optimistic, economic growth in the US is forecasted to be at or above the 1.8% non-inflationary rate over the coming years. The unemployment rate is projected to hover around 4.2% through the end of 2026, indicating a relatively stable job market. Furthermore, Personal Consumption Expenditures (PCE) inflation is projected to reach the Fed's 2% target by the first quarter of 2025.
Although most economists favour a 25 basis point cut, Michael Feroli from JP Morgan says that a 50 basis point reduction would be more effective. He believes that slower income growth is a headwind to consumer spending, and a larger rate cut could better support the economy. Feroli points out that current policies are restrictive, with growing downside employment risks and diminishing upside inflation risks.
Trading the Fed Funds Rate Announcement
The Federal Reserve's upcoming potential rate cut is a shift in monetary policy, aimed at fostering economic stability as inflationary pressures ease. The broader economic outlook for the US remains stable, with growth and employment rates expected to hold steady.
Traders should stay informed, remain vigilant and consider how these potential adjustments by the Fed will impact their trading strategies. According to historical data from Trading Central on our economic calendar, when the actual data matched the forecast:
- The price change on the USDJPY for the past 8 events ended bearish 63% of the time, over a 4 hour period after the announcement.
- The average price range for the USDJPY over a 4 hour period after the announcement was 161 pips.
The markets could get quite volatile around the time of the announcement, providing trading opportunities and risks, so be prepared for any scenario and trade responsibly.
How Will You Trade The Fed's Fund Rate Announcement?
While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.
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