What You Need to Know About FOMC Meeting & How to Day Trade It
This will be the first Federal Market Open Committee (FOMC for short) meeting that new chairman Jay Powell leads.
Many traders are wondering if there will be an interest rate hike.
However, there are far more important questions at hand at this high stakes meeting.
Let’s cover each one individually, and describe the trading opportunities in each scenario.
FOMC Meeting – Federal Reserve Interest Rate Hike Path
The stock market is now pricing in a 94.4% chance of a 0.25% interest rate hike tomorrow. This will take the Federal Funds Rate (FFR) to 1.50% to 1.75%.
No one will be surprised under this scenario, and it is the “expected course of action”.
The big question is around the Federal Reserve dot plot, which is just a chart of future expectation of interest rate hikes.
Traders are currently expecting 3 rate hikes in 2018, with one taking place tomorrow. If the Federal Reserve announces it is raising their dot plot expectations to 4 hikes in 2018, this will cause significant market volatility as investors re-balance their portfolios.
Here is a current look of the implied Fed rates:
Federal Reserve Rate Projections, Source:ZeroHedge
Interest Rate “Dot Plot” Day Trading Idea
- If dot plot shows 3 hikes as expected, expect little to no movement in markets.
- If 4 hikes are shown, this is hawkish (higher rates) and gold will drop, US dollar will rally as equities drop
FOMC Meeting – Expected March Statement Changes
Here are the expected changes in the official FOMC statement tomorrow, according to Morgan Stanley:
FOMC Meeting – Press Conference at 2:30PM EST
Traders are waiting to hear every word new Fed Chair Jerome Powell speaks at 2:30PM EST. This is because he will be answering questions in a non-scripted fashion.
You can expect to see a lot of volatility as traders scramble to adjust their positions and speculate based on what Powell says.
There is no way to forecast what will be said, or how the stock market will react.
As a responsible trader, you need to listen to a reliable news source tomorrow.
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FOMC Meeting – Other Noteable Expectations
In addition to the main criteria above, we are waiting for a few other events and observations:
- Will the Federal Reserve add a press conference to all meetings (monthly vs quarterly currently)
- Are Federal Reserve voters willing to allow inflation to overshoot the 2.0% target?
- Does the Federal Reserve think long-run economic conditions are improving?
FOMC Meeting – Conclusion
The March Federal Reserve (FOMC) meeting minutes and press conference is gong to be historic for many reasons. As a trader you cannot just have target fixation on one aspect.
You need to respect this meeting and have laser sharp focus and be ready to react accordingly and take a profitable opportunity when it rears its head. This is why you need a news wire, like the ones we offer here.
We have the first rate hike of the year tomorrow, and Jay Powell’s very first quarterly meeting and press conference. Enjoy the historic moment, and best of luck converting opportunity into profits.
Manage your risk and trade like a TRADEPRO!
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The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
