FOMC Holds, Focus to March for Lift-Off

FOMC, Federal Reserve Talking Points:

• Today brought the first rate decision out of the FOMC in 2022.
• The bank was widely-expected to hold rates flat today while opening the door for a hike in March. But, perhaps more important is what the FOMC says about their expectations for the rest of the year as they look to temper inflation. Will the start to open the door to Quantitative Tightening? Or perhaps a 50 basis point move in March?
• Today’s meeting is not a quarterly rate decision which means no updated forecasts and projections. This puts considerable focus on the press conference starting at 2:30 PM ET.
• This is a live article, meaning that it will be updated as developments take place, with time stamps for each update as we navigate the rate decision and press conference. The updates will post in reverse-chronological fashion, with the newer updates showing at top, and older updates below.

3:02

Gold falls back to support: Not to get lost in the shuffle but Gold prices have continued their pullback after the false breakout yesterday. I had looked at that live during the webinar, investigating fade plays on Gold as that breakout was happening.

The 1815 level has been a big one for Gold and this brings the running tally to $35 off of that resistance hit from the false break yesterday.

Gold Four-Hour Price Chart

2:57

The S&P 500 has pushed down to session lows with about 100 handles of range from the highs that printed just after the release of the FOMC statement.

Support appears to be trying to play-in from a short-term trendline projection.

S&P 500 15 Minute Price Chart

2:51

Rates up, stocks down. The Nasdaq 100 has fallen through support at 14,375 and is now testing the 14,243 support level. The 10 year note is now trading at 1.85% and is fast approaching last week’s high of 1.87%.

The Q&A has seemed to be much more-hawkish than both the FOMC statement and Powell’s opening remarks.

Nasdaq 100 15m chart

2:45

This comment from Powell in response to a question seemed to catch a lot of attention. Powell said ‘There is quite a bit of room to raise rates without dampening employment.’

This comes off as very hawkish and somewhat against the caution displayed in the initial statement.

The US Dollar has caught a strong bid on this and is currently at the high of the day.

US Dollar 15m chart

2:42

Opening statement complete. Initially stocks dipped and the USD caught a bid on the early part of Powell’s comments. But by the time he finished that theme had calmed and the Nasdaq 100 continues to hold that support at 14,375.

Nasdaq 100 15m Chart

2:34

As the presser begins, rates are creeping higher. The 10 year note is at the 1.8% marker that seemed to cause so many problems for equities when it came into play last week.

Powell currently in his opening statement for the presser, Q&A to follow.

10 Year Treasury Yield

2:28

USD is holding support in the rising wedge formation with the press conference set to begin in a couple of minutes. There’s a couple of key supports nearby, with the 95.86 and 95.52 levels lurking below.

US Dollar Four Hour Price Chart

2:23

‘Statement of principal’ was also released by the Fed, which is unusual, but this seems to be the bank’s attempt to talk about the balance sheet without exciting markets too greatly.

The Fed said that balance sheet operations will be predictable and will take place after rate hikes begin. Stocks didn’t seem to like this wrinkle, with the Nasdaq 100 pulling back for a support test.

2:12

Rates markets zero in on four hikes for 2022. This has provided a bit of clarity as rates markets were showing a wide range of potential for this year, with a non-neglible probability of five hikes or more.

But, perhaps the bigger fear was the prospect of QT and the fact that the Fed said the primary mechanism of tightening would be through the Fed Funds rate appears to have drawn some attention away from the prospect of QT after QE ends in March.

2:08

The initial reaction has been a strong push in stocks along with a touch of USD-weakness. The fact that the Fed seemed to avoid the topic of QT or Quantitative Tightening seems to be the bright spot, with instead the focus shifting to rate policy. The expectation for a March lift-off seems solid, and this is helping stocks to get some topside run.

Nasdaq 100 Hourly Price Chart

2:00 PM

The Federal Reserve held rates flat at today’s rate decision, as was widely-expected. But, today’s meeting never really was about a January hike. Instead, the focus is on the inevitable shift at the FOMC as the bank moves into a posture of tightening and hiking rates in the remainder of 2022 trade. And while markets seemed to receive the initial hawkish messages without much fear in Q4 of 2021, more recently pressures have begun to mount in equities as there’s been a fear that the Fed is behind the ball on inflation and may need to get much more hawkish at some point this year.

So, the question is just how hawkish will the Fed be? Rates markets have started to really run with that projection with the expectation of as many as five or six hikes in 2022. The median expectation ahead of the January rate decision was for four hikes in 2022, with each likely to be expected around the quarterly rate decisions at which the FOMC could provide updated projections for each 25 basis point move.

While it may sound nonsensical to talk about five or six or even four rate hikes before the Fed has even done one, markets are constantly forward-looking and the aggressiveness with which the Fed tightens policy has become of significant importance to risk markets around-the-world.

At DailyFX, we’ve already produced a plethora of content on the matter ahead of the rate decision.

Christopher Vecchio’s FOMC Preview

Chief Strategist John Kicklighter and IG CEO Pete Mulmat spoke earlier on the day to talk about possibilities around today’s rate decision.

I had looked into the matter in my US Dollar Price Action Setups webinar yesterday afternoon.

Mr. David Song took a look at the Australian Dollar and an interesting technical dynamic around the January opening range in the AUD/USD pair, with focus on FOMC ahead of the event.

Mr. Michael Boutros looked at Gold earlier in the day, a few hours ahead of the FOMC with eyes on breakout potential in the yellow metal.

In a somewhat related item, the Bank of Canada hosted an interest rate decision earlier in the day and while markets were highly-expecting a rate hike, the BoC chose to leave rates flat. Richard Snow covered this for the team.

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX