BofA advises against reacting to any initial hawkish market responses following the September FOMC meeting. They anticipate a 25bps rate cut and expect the Fed’s dot plot to exceed market expectations, but expect Powell’s tone to remain dovish.
Key Points:
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Market Uncertainty:
- High Uncertainty: The market is highly uncertain about the September FOMC meeting, reflecting varied expectations.
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Rate Cut and Dot Plot Expectations:
- Anticipated Cut: BofA expects the FOMC to announce a 25bps rate cut.
- Dot Plot: They predict the Fed’s dot plot will be above market expectations, potentially signaling a more cautious approach to future rate cuts.
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Powell’s Likely Tone:
- Dovish Outlook: BofA expects Fed Chair Powell to adopt a dovish tone, emphasizing downside risks to the labor market and expressing willingness to accelerate rate cuts if necessary.
Conclusion:
BofA suggests that any initial hawkish reaction to the September FOMC should be faded. They anticipate that Powell’s statements will lead to a market interpretation of the FOMC as delivering a neutral to dovish cut, despite any initial market movements.
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This article was written by Adam Button at www.forexlive.com. Source