2019-11-11 • Updated
Traders and investors all over the world are highly anticipating the Federal Open Market Committee (FOMC) statement and the Federal funds rate announcement today at 21:00 MT time. According to most forecasts, Federal Reserve (Fed) will most likely hike the interest rates to 2.25% - the record level in the last 10 years. If it happens, this will be the third rates hike in 2018.
Almost everyone is sure about the today's rates hike
The reason for this behavior of the Fed lies in large tax cut by the Congress during last year. The Fed is trying to keep things balanced and prevent economy from overheating by raising the rates. The inflation has been kept at the same level around 2%. In addition, Federal Reserve has been referencing to its policy as to “accommodative” since 2007-2009 recession. The latest data on the US economy conditions demonstrates a stable growth and a low unemployment rate. Annualized GDP for the second quarter increased by 4.2%. These facts have led to today’s upcoming decision to change the direction of the monetary policy from “accommodative” to neutral. However, this does not mean the end of the rate growth.
According to the research conducted by CME Group, the Fed meeting on November 8 will not involve the rate hike. The next statement on December 19 has a 78.6% possibility for the next rate hike by 25 basis points. The predictions from Fed officials contains 3 rate hikes in 2019 and 1 in 2020. The first policy forecast from the Fed for 2021 may also have some additional increases. In that case, it can be the longest economic expansion in the history of the United States.
Are these tools necessary for the economy? A Fed governor Lael Brainard thinks that the economic policy of Trump and his administration requires higher rates. On the other hand, Trump argued that monetary policy decisions are distracting the economic growth of the country. Some of the analysts share the idea that the market can adapt to 2-3 rate hikes, although they tend to believe that pressures on the price may continue.
What to expect for the US dollar
As a result of today’s meeting, the dollar will increase if:
On the other side, the dollar will drop if:
Even if today’s decision from the Federal Reserve is hawkish and currency-supportive, the long-term effect may not be so positive. Among the main risks following current monetary policy may be an increasing difference between interest rates in the US and other countries and, of course, the trade war between the US and China.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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