US Interest Rate Prep

On Thursday 7th of November at 14:00 ET, the FOMC is set to release the results of their latest monetary policy meeting.
Here are some views on what to expect.

General Expectations
Median expectations expect the Fed to cut rates by 25 bps, bringing the rate from 5% to 4.75%.
Market expectations agree with the median analyst view, with a 98.5% chance of a 25 bps cut priced in by the US Interest Rate futures market at the start of the week.

If the Fed shocked the market with no change, we would expect to see a large amount of weakness in US stocks and large strength in the US Dollar and Government Bond Yields.
If the Fed shocked the markets with a larger-than-expected cut of 50 bps, we would expect to see a large amount of strength in US stocks and a large amount of weakness in the US Dollar and Government Bonds.
These scenarios are unlikely.

If the base case of a 25 bps cut to 4.75% is realized, attention will instead turn to the rate statement which is released at the same time.
If the rate statement is dovish (underlines the Fed’s ability to continue interest rate cuts due to confidence in inflation return to target and the state of the employment situation), we would expect to see strength in the US Dollar, and weakness in US stocks.
If the Rate Statement is more hawkish (underlines the Fed’s lack of confidence in inflation and employment, and urging a more cautious path forward for monetary policy), we would expect to see weakness in stocks and strength in the Dollar and Government Bond Yields.
if the rate statement has little language change from the prior rate decision, we would expect whipsawing in the US assets, but no sustained moves.

Keep in mind that the markets will be stood to attention for the FOMC press conference with Chair Powell as well, where he will have the chance to explain rhetoric in the Rate Statement, which can either work for or against any of the initial market reactions.
The press conference has historically been an event that has caused high volatility.

Commentary
Barclays
Despite the totality of recent data surprising to the upside, we still expect the FOMC to cut policy rates 25bp, in line with pre-blackout Fed communication, which did not push back against market expectations of a rate cut.
We expect the FOMC to attribute much of weakness in the October payroll print to hurricane-related disruptions and to the Boeing strike, and we think the statement will still describe the risks to employment and inflation as ‘roughly in balance’.
At the press conference, we expect Chair Powell to signal that more cuts will likely be coming, but we
do not expect him to provide precise guidance about the timing and pace.
After next week, we still expect the FOMC cut 25bp in December, though we see growing risks of a December pause, given that the unemployment rate is likely to be lower and core PCE higher than in the FOMC’s September projection.

Bank of America
We expect the Fed to cut rates by 25bp in November. Barring a big surprise in the Oct jobs report, we see little need for material changes to the statement.
Chair Powell’s message in the press conference should remain optimistic, particularly given the recent robust data flow. Powell is likely to emphasize data dependence once again, and provide little forward guidance about the policy path.
Regarding the election, Powell will probably say that it is too early to evaluate the next administration’s policy agenda.

JPMorgan
The Fed is on track to deliver a 25bps cut this week and if data stays in the same range, we are likely to see another 25bps cut in December.
Labor markets remain more important than inflation for the Fed and with the noise from Friday’s NFP not impacting the unemployment rate, the December NFP takes on increased importance, meaning if we see the unemployment rate fall below 4%, it will be a challenge for the Fed to cut rates, and they may look to skip a meeting, a possibility raised by the Fed’s Bostic.

Morgan Stanely
We expect the FOMC to cut the fed funds rate by 25bp to 4.625% [4.75% upper bound].
We expect the FOMC statement to upgrade its assessment of growth and continue to recognize progress on inflation.
In the press conference, we doubt Chair Powell commits to a size or cadence for future cuts; decisions should depend on the data.

Previous Release
On Wednesday 18th of September, the FOMC cut rates by 50 bps to 5.5%, on the forecast cut of 25 bps.
This resulted in Dollar and Treasury Yield weakness and S&P 500 strength.With this Rate Decision, the FOMC also released its Summary of Economic Projections, which underlined the view of median policymakers being more dovish on the future of US monetary policy than they were in the previous SEP.
They downgraded inflation projections and increased the amount of cuts expected by the end of 2025, which contributed to the bullish reaction in US stocks.
This Rate Decision will not have an SEP.