The Federal Reserve's Upcoming Rate Decision Scenarios
The Federal Reserve is set to announce its decision on interest rates and release a statement on Wednesday, September 18, at 6:00 PM GMT. This decision is highly anticipated by investors and economists worldwide due to its significant impact on global financial markets. After a year of economic fluctuations and ongoing inflation concerns affecting growth, these decisions will play a key role in shaping the future of both the U.S. and global economies.
Federal Reserve Decision Expectations
There is a divide in expectations on whether the Fed will cut interest rates by 25 or 50 basis points during this meeting, particularly given the sharp slowdown in inflation, which is now approaching the target rate. The Consumer Price Index (CPI) recorded a year-on-year increase of 2.5%, the slowest pace of growth in over three years.
The most likely scenario is a 25 basis point cut, but there is also the possibility that the Fed could signal its intent to lower interest rates during upcoming meetings in November and December
Impact on the U.S. Dollar
Typically, the U.S. dollar tends to decline when the Fed cuts interest rates, as it reduces the appeal of the dollar as an investment currency due to lower returns from U.S. assets, particularly bonds. Therefore, if the Fed decides to cut rates, the dollar is expected to weaken against major currencies such as the euro and the yen
Impact on U.S. Stock Indices
U.S. stock markets, especially indices like the S&P 500, Dow Jones, and Nasdaq, are likely to benefit from the start of monetary easing. However, market focus will also be on the performance of the U.S. economy and the level of spending in the coming months, rather than just the scale of the rate cuts this year. Investors generally see lower borrowing costs as a potential boost for economic growth, which could positively impact corporate earnings.
If the Fed decides to cut rates, a rise in stock indices is expected. However, if the Fed adopts a cautious tone toward further rate cuts or indicates that future decisions will depend on upcoming economic data, this could have a negative impact on the markets, shifting focus toward potential future earnings growth and economic recovery rather than the immediate level of interest rates.
Impact on Gold
Gold is considered a safe haven during periods of economic uncertainty and high inflation. If the Fed signals continued rate cuts, this could lead to a rise in gold prices, as the dollar weakens and demand for safe-haven assets increases, especially with recent strong demand for gold from central banks and in futures markets.
Possible Scenarios and Their Implications
25 basis point rate cut:
U.S. dollar:Stabilization or slight decline in the dollar's value.
U.S. markets:Rise in stock indices.
Gold: Increase in gold prices.
50 basis point rate cut:
U.S. dollar:Strong decline in the dollar's value.
U.S. markets: Strong rise in indices.
Gold: Significant increase in gold prices.
Indication of continued rate cuts in upcoming meetings:**
U.S. dollar:Gradual decline until the November meeting.
U.S. markets:Rise in stock indices.
Gold: Prices climbing toward **$2,600 to $2,650**.
