What to watch from FOMC meet ahead?

We expect a great deal of debate among FOMC policymakers over the path of the hikes. Since the last meeting in April, several policymakers openly called for a faster rate hike, while some of them scaled back their tone after employment report disappointed for second consecutive month in May.

Due to upcoming referendum in the UK next week, policymakers are largely expected to maintain status-quo but that doesn’t mean FOMC will be a non-event, the market will try to focus what the FED will do in the case of a  turmoil in the financial markets post exit and what it may do if the UK stays in the European Union.

Focus will be on the followings –

• Policy decision –Most of the analysts including us at FxWirePro and economists expect FED to hold interest rates steady at the current level of 0.25-0.5%. The market is pricing 100% chance of no hike today.

• Economic forecasts – Changes in economic forecast would provide a general feel, how participants are viewing the economy ahead.The kKey will be the inflation forecast. Any major changes on the inflationary front may mean FED likely to turn hawkish going ahead. GDP growth forecasts may get revised down.

• Dot Plot – As of now, there exist quite a disparity between market and FED policymakers. As of March forecast, FOMC participants were forecasting two hikes in 2016, while the market is predicting one. So it would be vital to watch out how the gap stands. A large gap could still send a hawkish message while narrowing would act as bearish for Dollar.

• How divided is the board – While December hike was unanimous, from March Kansas City FED president Esther George called for a hike. So the focus will be whether others join in or she scales back looking at the referendum.

• FED’s assessment of Brexit risks – How FED may react in the event of an exit will be key focus – status quo or rate cut. Is FED have contingency plans in the event of an exit.

• Press conference – As always Ms Yellen’s press conference would be the most vital piece, where Q&A likely to provide more clarity what FED thinks about recent weakness in the labour market, a slowdown in growth or what it plans to do in the event of an exit.