The FOMC decision and the Federal Reserve's updated summary of economic projections and dot plot, will be global capital market movers on Wednesday afternoon.
FOMC Policy Decision and Economic and Interest Rate Projections (Wednesday, December 19, 2:00 p.m. ET)
Fed Chairman Powell's Press Conference (Wednesday, December 19, at 2:30 p.m. ET)
The Federal Reserve is the world's most influential central bank.
Global equity markets have been falling due in part to concerns about the Federal Reserve pursuing an aggressive tightening path. Given the scope of equity losses, investors are all but begging for the Federal Reserve to dial back its policy-tightening approach.
The probability of a rate hike at the December meeting, according to the CME Fed Watch Tool, currently sits at 71.5%. A rate hike isn't a certainty in the market's mind, so there is ample room for surprise still in the FOMC announcement, which could create an increase in trading volatility.
Fed Chair Powell recently left the impression that the Fed is close to the neutral rate. This creates assumptions in the market that the dot plot for 2019 will show a softening in the prior projection of three rate hikes in 2019. If it does not, look for a negative response in the market. This comes on on the heightened fear that the Fed is risking a policy mistake.
Trump has said that he has not been happy about the Fed rate hikes and that he thinks it would be a mistake for the Fed to raise rates again. Some think that commentary makes the Fed's job more difficult since it leaves the Fed in a position of looking as if it is reacting to political views if it does not raise rates at this meeting.
The FOMC decision and outlook could potentially accentuate the policy divergences between the Fed and other leading central banks, which could drive policy divergence trades in currency and bond markets.
The target range for the fed funds rate was raised to 2.00% to 2.25% at the September 2018 meeting.
At the September 2017 FOMC meeting, the Federal Reserve formally announced the start of its balance sheet normalization program.
It planned to cap the reinvestment of principal from maturing Treasury securities at $6 billion per month initially, starting in October 2017, and increase it in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
It planned to cap the reinvestment of principal from maturing agency and mortgage-backed securities during the normalization process at $4 billion per month initially, starting in October 2017, and increase it in steps of $4 billion at three-month intervals until it reaches $20 billion per month.
Everything is in play on an FOMC day.
Treasuries and related bond ETFs:
ProShares UltraShort 20+ year Treasury (TBT)
iShares 20+ Year Treasury Bond (TLT)
iShares 1-3 Year Treasury Bond (SHY)
Schwab Short-term US Treasury ETF (SCHO)
iShares iBoxx $ High Yield Corporate Bond (HYG)
SPDR Barclays High Yield Bond ETF (JNK)
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
iShares Floating rate Bond ETF (FLOT)
U.S. Dollar and related ETFs:
DB USD Index Bullish (UUP)
DB USD Index Bearish (UDN)
Rate-sensitive sectors like utilities, REITs, and financials and related ETFs:
Utilities Select Sector SPDR ETF (XLU)
iShares U.S. Real Estate ETF (IYR)
REIT ETF (VNQ)
Financial Select Sector SPDR ETF (XLF)
SPDR S&P Bank ETF (KBE)
SPDR S&P Regional Banking ETF (KRE)
SPDR S&P Insurance ETF (KIE)
iPath S&P 500 VIX ST Futures ETN (VXX)
ProShares Ultra VIX Short-Term Futures (UVXY)
Pro Shares Short VIX Short-Term Futures (SVXY)
ETFs and inverse ETFs for the major averages
SPDR S&P 500 ETF (SPY)
Short S&P 500 (SH)
PowerShares QQQ Trust Series (QQQ)
Short QQQ (PSQ)
iShares Russell 2000 (IWM)
Short Russell 2000 (RWM)
SPDR Dow Jones Industrial Average ETF (DIA)
Short Dow 30 (DOG)
Fed funds futures