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FOMC decision today- What to Expect?

30-Jan-2019

The US central bank will conclude its two day meeting today and a decision is expected at 0030 IST, Jan.31. Fed Chairman Jerome Powell will hold a news conference at 0100 IST, Jan.31. Fed has now decided to hold press conference at end of all meetings.

The US central bank is expected to keep interest rate unchanged at 2.25-2.5%. Fed is also expected to maintain patient stance on interest rate hike and cautious tone on US economy. This has already been factored in and there may be no major impact on US dollar or global financial market unless there are fresh cues from Fed.

In last few weeks, Fed officials have expressed the need to be patient on rate hikes given challenges to US economy in face of global uncertainty. Fed is projecting two rate hikes this year while market players are seeing possibility of one of no rate hikes. Fed's statement today will be watched for more clarity on future rate hikes.

Fed is optimistic about US economy but has raised concern about impact of global challenges. Global economic outlook has continued to worsen amid uncertainty about Brexit and US-China trade deal. Additionally, the 35-day US government shutdown has also affected US economy. This indicates that Fed may maintain cautious tone on the economy.

Meanwhile, focus will also be on Fed's stance on balancesheet reduction plan. Market players have been unnerved by Wall Street Journal report suggesting that the Fed members are considering ending the balance sheet reduction plan earlier than previously expected. Fed statement will be watched for more clarity on Fed's plan.

Fed's patient rate hike stance, caution over US economy and prospect of ending of balancesheet reduction is negative for US dollar but has been factored in to a large extent. Unless Fed sounds more cautious on US economy or acknowledge plans to end balancesheet reduction, the US dollar may not see much decline.

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