The FED meeting today is important for setting up future rate moves. I would pay less attention to the data and more attention to the tone of the language.
Regarding the risk of a hike today, it is close to zero since politically it is too early since the the Trump takeover. The next meeting in March is worth watching for a possible rate hike. Thus this meeting will hopefully clarify the following:
- Will a rate hike occur in March? To address this, watch the tone of the language used today. If it is on the aggressive side in terms of risks, either a rate hike is ‘in the cards’ for March or the FED wants to keep that option open.
- The disconnect between what the market thinks and what the FED thinks is one additional rate hike. The market is pricing in two hikes while the FED is pricing in three hikes. Of course, some analyst think 3 or even 4 hikes could happen this year. Here what the FED says in terms of risks and the data are part of equation in trying to forecast the number or rate hikes.
I think they will be aggressive enough to keep the March option open. Our estimate is for three to four hikes this year as inflation expectations could move faster than most people think.