Written Commentary
INTEREST RATE MARKET FUTURES
The Fed’s two-day meeting concludes today with a policy statement at 1:00 p.m. and Powell’s press conference at 1:30 p.m. Financial futures markets are predicting there is a 98% probability that the FOMC will maintain its fed funds target rate at zero to 25 basis points.
The FOMC will likely elaborate on its recently announced “average inflation targeting” framework. The Fed’s policy suggests it will seek inflation exceeding 2.0% for a period of time to offset recent inflation undershoots.
Fed Chair Powell is likely to speak about the need for Congress to provide more fiscal stimulus. In addition, Mr. Powell and may open the door to shifting the emphasis to asset purchases.
Interest rate market futures at the short end of the curve are likely to be supported by ideas that major central banks, including the Federal Reserve, will keep short term interest rates low for an extended period. Some analysts believe it will be several years before the Federal Reserve will be in a position to hike its fed funds rate.
However, futures at the long end of the curve, especially the 30-year Treasury bond futures may be undermined by the inflationary aspects of the Federal Reserve’s “average inflation targeting” policy.
STOCK INDEX FUTURES
U.S. stock index futures are higher, as traders await the conclusion of the Federal Reserve’s two-day monetary policy meeting.
In addition, there is renewed optimism for a bipartisan economic stimulus package.
August retail sales increased 0.6% when a gain of 1.0% was expected.
There are three 9:00 central time reports. The September housing market index is anticipated to be 78 and the July business inventories report is estimated to show a 0.1% increase. The Atlanta Fed’s Business Inflation Expectations last month was 1.7%.
I am expecting the statement from the Federal Open Market Committee today will be dovish on balance.
CURRENCY FUTURES
The U.S. dollar index is lower, and the euro currency is higher, as traders expect a dovish on balance statement from the FOMC.
The British pound advanced on news that U.K. inflation fell in August to its lowest level for nearly five years but was above expectations.
The Bank of England will hold its policy meeting tomorrow. No change in interest rate policies is expected. Traders will focus on the statement.
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