The United States (US) economy is the world’s largest by nominal Gross Domestic Product (GDP) with a highly diversed industrial sector. The US Federal Reserve’s (Fed) decisions are playing a crucial role on how the global economic activity unfolds and are taken into consideration by investors and traders when forming their strategies. This week the Fed’s governing council will attract the attention of markets and analysts as it will convene to decide on interest rates. 

On Wednesday November 7th and Thursday November 8th 2018 the Fed’s board will be having a two-day meeting to discuss matters of monetary policy and announce whether it’s going to pick up borrowing costs or it will keep them unchanged. The Fed’s benchmark interest rate currently stands at 2.25%. The consensus among economists is that the Fed will keep interest rates on hold at the November 2018 meeting.  

The Internationale Nederlanden Groep (ING) published a report on November 2nd 2018 that forecasts a December 2018 rate hike by the Fed. ING’s analysts noted that “while no longer described as 'accommodative', monetary policy is far from restrictive. A strong domestic story means the Federal Reserve will continue to signal “gradual” rate hikes ahead, setting us up for a December move and then three more hikes in 2019.” Economists at ING forecast that the Fed will raise its rates three times during the first three quarters of 2019. However, they add that this will bring an end to the Fed’s policy tightening as trade uncertainty is creating a headwind for activity affecting the US economy. 

Nordea Markets’ research analysts suggest that as the Fed is preparing for a December 2018 rate hike, the statement to be released after the Fed’s November 2018 meeting will be closely watched for signs of sensitivity to the decline in the stock market. “The Federal Open Market Committee (FOMC) is universally expected to remain on hold and there will neither a press conference nor new forecasts, so all focus will be on the post-meeting statement. There is one question everyone wants an answer to: is the Fed starting to worry about the sell-off in the stock market?” was noted in the report. The Nordea Markets’ researchers believe that the decline in the stock market so far isn’t anywhere close to the point that it would force the Fed to change course. They stress that with the economic activity and job gains still very strong, “the Fed will be hesitant of sending dovish signals.”

In a report published by Westpac on November 7th 2018 it is suggested that the Fed will likely raise the federal funds rate to a peak of 3.125% by September 2019. “This profile is somewhat more hawkish than current market pricing which expects the federal funds rate to peak at around 2.9% by end 2019. While the FOMC’s “dots” envisage a peak of 3.4%, this assumes a continuation of above-trend growth in 2020. We instead expect growth to decelerate to trend in late 2019,” Westpac’s economists note.

STO and trading the US Dollar

The US Dollar against the Euro, the US Dollar against the British Pound and the US Dollar against the Japanese Yen are just three of the major currency pairs that you can trade with on the STO platform. STO provides its clients with all the necessary educational material such as webinars to help them with preparing the suitable trading strategy.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67.56% of retail investor accounts lose money when trading CFDs with AFX Capital Markets Ltd. 68.77 % of retail investor accounts lose money when trading CFDs with AFX Markets Ltd. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information about the key risks associated with CFDs, please refer to our full Risk Disclosure.