The rate decision isn't the main focus today and the statement language should not offer much. The Fed will leave rates unchanged, with no firm move there expected at least in this meeting and the next. Given the absence of fireworks, all eyes will be on Powell's press conference instead. So, what can we expect from the Fed chair?
Taking recent data into consideration, there is a chance to see Powell stick with a less dovish rhetoric today. I'm not going to lean towards saying that he will be hawkish, as that would imply potentially looking to hike rates instead. And we're not quite entering such a realm of possibility just yet.
Inflation has been a bit stickier and the US economy continues to hold up well. And in response, traders have moved to price in the first rate cut from June to potentially September for now. The odds of the latter are still not that convincing though, with Fed funds futures seeing a ~54% probability of rates being unchanged at the end of Q3.
The question now will be, is Powell going to give markets a reason to not consider any rate cuts at all for 2024? I highly doubt that. The Fed has softened their language on policy since last year and they will be comfortable enough to keep with that for the time being.
The only thing is whether they might shift towards possibly considering rate hikes. In my view, the Fed isn't that desperate to bring that narrative into the picture yet.
But any slight indication by Powell on keeping that door open could be enough to give the dollar a boost while weighing further on risk assets. And I think that's the only real risk to a more volatile market reaction today.
