How Will Markets Respond to the September Fed Meeting?

Analyst Chat Talking Points:

• Markets are expecting a 75-bps rate hike at the September Federal Reserve meeting, although a 100-bps rate hike isn’t out of the question.
• Price action has been singularly influenced, whereby good days for the US Dollar have been consistently met with weakness in US stocks, gold prices, and oil prices.
• Live coverage of the September Fed meeting begins on Wednesday, September 21 at 13:45 EDT/17:45 GMT.

US inflation rates may be moderating, but not nearly quick enough for the Federal Reserve to slowdown its rate hike cycle just yet. In fact, after the release of the August US inflation report (CPI) last week, rates markets began discounting a 100-bps rate hike at the September Fed meeting tomorrow. While those rate hike odds have since backed-off, it’s too soon to dismiss the possibility of an aggressive tightening move by the FOMC.

As has been the case for several weeks, price action in financial markets has more-or-less been a binary outcome: rising US Treasury yields and volatility have catered to a stronger US Dollar and weaker US stocks, gold prices, and oil prices (and vice-versa). It’s likely that this binary state of price action remains in place around the September Fed meeting.

Moreover, the September Fed meeting has elevated stakes insofar as it will be the first time since June that the FOMC has released a new Summary of Economic Projections (SEP). Financial markets will need to contend with the (1) rate decision itself, (2) new economic forecasts, and (3) Fed Chair Jerome Powell’s press conference. This means that the initial moves seen may not ultimately be the lasting move across assets.

How will global financial markets respond to the September Federal Reserve rate decision? Chief Strategist John Kicklighter and Senior Strategist Christopher Vecchio, CFA discuss in this Tuesday’s DailyFX Analyst Chat.

— Written by John Kicklighter, Chief Strategist and Christopher Vecchio, CFA, Senior Strategists