The Federal Open Market Committee (FOMC) is set to kick off a two day meeting on Tuesday 19th of September, a meeting that is considered of high significance to many economist and investors worldwide, as the Federal Bank is expected to announce its balance tapering program, a move that is expected to send shock waves throughout markets worldwide.
Furthermore, an interest rate decision will be released by the Fed on the following day Wednesday the 20th of September, investors worldwide will keep a close eye on the FOMC policy statement and the Fed economic forecast that will be released simultaneously, then they would move their attention to the press conference at which Fed Chair Janet Yellen will be the main speaker.
Looking at the expected outcome of the FOMC meeting, the recent strength in inflation data for the month of August should not influence the Fed’s interest rate decision for September, as most economists expect the Fed to leave base rates unchanged. However, analysts believe that the recent rise in inflation supports the Fed’s case for another rate hike this year, as can be seen in CME FedWatch Tool, odds for a December hike increased to 50.9% after the release of inflation data, from 41.3% before the release.
Consumer price index advanced by 0.4% in August, while the core rate rose by 0.2%. On a yearly basis, Headline CPI came in at 1.9% Year on Year, while core inflation came in at 1.7% year on year.
Furthermore, economists are expecting base rate to remain on hold in September, and are widely expecting the main headline of the meeting to be the announcement of the initiation of the Fed’s plan to trim its substantial $4.5 trillion balance sheet.
Investors will keep a cautious eye on the Fed economic forecast report. In the Fed’s last economic forecast released in June, the Federal Reserve projected that core inflation would settle at 1.7% for the year 2017, and would eventually reach the Feds target of 2% in the year 2018. Moreover, if the Fed leaves its inflation forecasts unchanged, this will further bolster expectations of a third rate hike this year.