Welcome to Fed day | Forexlive

The market pricing has not shifted significantly after the US CPI report here. As things stand, traders are still pricing in the first rate cut by the Fed to be for May next year. And in totality, there is roughly 110 bps worth of rate cuts priced in for the whole of 2024 currently.

That reaffirms that perhaps we are running at maximum capacity already in pricing in Fed dovishness. I mean, to suggest that we could see a rate cut as early as March next year would mean that the Fed is only left with two more meetings (today included) to pivot to such a stance.

I reckon that remains a case of too fast, too soon. Not least with core annual inflation still sitting at 4% as seen yesterday.

So, what exactly does that entail ahead of the FOMC meeting statement and decision today?

All else being equal, the balance of risks should suggest that markets might be caught offside. That is if the Fed does not produce a shift in the language. If the central bank sticks to the status quo, there is a likelihood of traders being disappointed. And that could lead to some pushback to the aggressive rate cut pricing above.

That being said, this is a market that is desperate and craving for any signs of relenting by the Fed. That is rather evident by yet another surge higher in stocks overnight. As such, any minor hints by Powell in his press conference or a slip of tongue would be more than enough to get traders to vindicate their recent thinking.

The onus is on Powell not to make a mistake in that sense, if he does not intend to hint at rate cuts in the near future. So, the question is can he pull that off?