Fed decision day arrives

Wednesday, September 16 marks the Federal Reserve's monetary policy decision under Kevin Warsh. High uncertainty surrounds what the Fed will do and its outlook for the months ahead.

Oil and gas prices pressure rates

Rising oil and gas prices combined with higher market interest rates are putting strong pressure on the Fed to raise the federal funds rate. The balance of power within the FOMC remains uncertain.

All markets hang in balance

The Fed's announcements tonight will ripple across equities, bonds, foreign exchange, commodities, and cryptocurrencies. The key question is whether policy will be restrictive or accommodative through year-end.

Signal one: dot plot shifts

The dot plots show individual FOMC members' expectations for future policy rates. Watch whether the median projection moves toward higher or lower rates by year-end and 2027.

Dot plot dispersion matters

The spread of dots across the plot indicates how divided the FOMC is on future rates. Wide dispersion signals internal disagreement about the policy path ahead.

Signal two: two-year Treasury yield

The US two-year Treasury yield is highly sensitive to monetary policy expectations and will gauge investors' immediate reaction to the Fed's statement. Pay close attention to its spread versus the federal funds rate.

Two-year yield spread signals policy

If the two-year yield stays significantly above the federal funds rate, markets expect restrictive policy. A rapid decline would signal investors anticipate more rate cuts ahead.

Signal three: inflation forecasts

The Fed's updated macroeconomic projections, especially core inflation forecasts, are crucial. Changes here reveal how the Fed will react to rising energy prices and economic conditions.

Upward inflation revision means tightening

An upward revision to inflation forecasts combined with resilient growth would reinforce a more restrictive Fed stance. This scenario supports higher rates ahead.

Disinflationary path enables easing

If the Fed maintains a disinflationary trajectory while lowering growth forecasts or showing labor market deterioration, markets could anticipate more accommodative policy and rate cuts.

Three signals decode the message

The combination of dot plots, the two-year Treasury yield, and macroeconomic projections will reveal the Fed's true message tonight. Together they show whether policy will tighten or ease.

“It is therefore the combination of these three signals, dot plots, the US 2-year yield, and macroeconomic projections, that will make it possible to determine the Fed's true message tonight.”