Do economic data push the US Federal Reserve to change its policy? by Arab Trader

Do economic data push the US Federal Reserve to change its policy? by Arab Trader
Do economic data push the US Federal Reserve to change its policy? by Arab Trader

Expected scenario: Will the economic data push the US Federal Reserve to change its policy? – During trading tomorrow, Wednesday, at 6 pm GMT, the markets are awaiting a release on the interest rate and monetary policy measures, in addition to the announcement of the bank’s economic expectations. This is scheduled to be followed by the press conference of US Federal Reserve Governor, Jerome Powell, to comment on the interest statement and the economic outlook statement, and tomorrow’s decisions and Powell’s statements are expected to have a strong impact on market movements.

Economic conditions in the United States

Since the last US Federal Reserve meeting, many important economic data were released in the US, which had a strong impact on the movements of the US, major currencies and various markets. Looking at these data, we find that these data were uneven during the month of August. On the one hand, the monthly data during August fell short of expectations, while the annual inflation rate continued to be near its highest level in nearly 13 years.

The US labor market data witnessed a mixed performance during last August, which raised expectations that the US Federal Reserve will postpone the hint to start reducing asset purchases, especially after the very weak performance of the non-farm employment change indicator. And retail sales returned expectations to start reducing asset purchases soon to the markets again, as data jumped during August in a way that exceeded market expectations strongly.

Decision makers’ statements

The statements of the US Federal Reserve members have continued over the past two weeks, and many of them have similar statements regarding the need to start reducing bond purchases. Loretta Mester stressed the need to start reducing the size of the bank’s purchases of assets during the current year, and that this will end by the middle of next year.

Rafael Bostik indicated that the door is still open to start reducing bond purchases this year, and he does not think that the US Federal Reserve will signal the start of reducing bond purchases this month. Robert Kaplan believed that it would be better to start reducing bond purchases if the economic data came in line with the bank’s expectations, and stressed his support for the start of a gradual decline in asset purchases starting from next October.

As for the US Federal Reserve, Jerome Powell, he said last August that he believes that a move to reduce bond purchases by the end of the year may be appropriate if the economy continues to develop as expected, and Deputy Governor of the Bank, John Williams, reiterated those statements even after The jobs report was released last August.

Expected scenarios for tomorrow’s decision and its impact on the US dollar

Market expectations indicate that the US Federal Reserve will keep the interest rate unchanged during the September meeting at 0.25%, and the bank is likely not to change any monetary policy measures during the September meeting, but it is possible that the bank will tend to hint to start reducing bond purchases.

In addition, the markets focus will be more focused on the bank’s expectations during the September meeting, as the bank will announce expectations of economic growth, unemployment and inflation, and the bank will also issue interest rate expectations, which will determine interest paths until 2024, and the last expectations of the bank during last June had It showed that the average forecast of the 18-member panel was that it could raise rates twice by 25 basis points by the end of 2023.

Thus, any signals from the US Federal Reserve about starting to reduce bond purchases, or improving expectations of unemployment, inflation and growth, will be strongly reflected on the movements of the US dollar, and will push it to achieve more gains and return to moving above 93.50 levels again and exceeding those levels.

However, the US Federal Reserve Governor, Jerome Powell, may resort to waiting for some time to be sure of more economic data, especially the US labor market data during September and October, which will limit the gains of the US dollar that it made this week.

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