Tuesday 30 July 2019 11:03 am Markets Talk

Could this be the biggest monetary policy meeting in years?

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The Federal Open Market Committee (FOMC) begin a two-day policy meeting today, the results of which are the most hotly anticipated in a long time.

The market consensus is they’ll cut rates, but how likely is that?

Stocks are currently at record higher, based on a certainty that short-term interest rates will be cut for the first time in a decade on Wednesday. The two-day policy meeting kicks off today, with an announcement expected tomorrow – and markets have bated breath.

While Chairman Jerome Powell signalled a cut in July, it’s unclear what the policy could be for the rest of the year. And is a cut even necessary? While the consensus is that a cut is coming – the only quibble is 25bps or 50bps – the recent economic data looks strong. As our Chief Markets Analyst, Neil Wilson, explains:

“Is a cut justified? I would point to underlying core CPI at 2.1 per cent, retail sales +3.4 per cent in June and a 50-year low in unemployment as perhaps arguments to the contrary. Increasingly there is a sense that the Fed is no longer data dependent, but being held to ransom by the White House and the market.”

But what can we expect from the meeting?

The answer is, we don’t know.

There are two outcomes, based on whether the FOMC confirms a cut or surprises the market with a more hawkish stance.

If the cut is paired with a more dovish long-term view, expect the dollar to fall.

However, if the FOMC changes its position and doesn’t go ahead with a cut, be prepared for stocks and commodities to tumble and the greenback to climb.

At this stage, despite stronger-than-expected data, growth momentum is weaker. While a recession has been avoided, a cut is still the safe bet. This policy meeting could define the direction of global monetary policy for years to come and provides a lot of opportunities for traders. One thing’s for sure, the announcement on Wednesday is not one to miss.