While consensus among economists is that there will be no rate cut following this month’s meeting, how Federal Reserve Chairman Jerome Powell illustrates the Fed’s views on the state of the economy and outlines the Fed’s future monetary path will be focal points among market watchers.
“We think the FOMC will guide markets towards the possibility of a cut, if conditions warrant. We expect the Fed to remove the ‘patience’ guidance in the statement and underscore that it stands ready to offer accommodation to sustain the recovery,” Bank of America wrote in a note Friday. “Chair Powell will have to thread the needle in sounding sanguine on the outlook, but also discuss that the Fed is ready to ease in order to make sure the recovery continues.”
Another focal point will be the Fed’s dot plot. “We do not think the Committee will see a need to include a rate cut in their dot plot for this year. The current setting of the funds rate is at or below the longer-run dot for all participants, implying that they see policy as either neutral or slightly accommodative. Even with a reduction in the longer-run dot, that would still leave policy as neutral for the majority of the Committee,” UBS wrote in a note Wednesday.
Morgan Stanley economists point out that while the Fed will be ready to act if necessary, it is unlikely that policymakers will “rock the boat” ahead of the highly-anticipated G20 summit at the end of this month.
Meanwhile, corporate earnings remain light. Tech giant Oracle (ORCL) will announce quarterly results after the market close. Analysts expect the company to report adjusted earnings of $1.07 per share on $10.94 billion of revenue.
The iShares 20+ Year Treasury Bond ETF (TLT) was trading at $131.73 per share on Wednesday morning, down $0.62 (-0.47%). Year-to-date, TLT has gained 4.72%, versus a 10.08% rise in the benchmark S&P 500 index during the same period.
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