FOMC Preview: No More Tightening Bias

While the market is split about the March - and subsequent - Fed meetings, tomoorrow's FOMC decision is clear: the Fed will keep rates unchanged at 5.25-5.50% while tweaking the statement further to signal the end of the tightening bias and tipping the balance towards futures rate cuts. And since there are no new Economic Projections (i.e., "Dot Plot") at this meeting after the December release saw three rate cuts pencilled in for 2024, markets will focus on the statement and Powell's messaging for clues on the path ahead.

Here, as Newsquawk notes, the March meeting is likely to remain an open question after Powell concludes this week, given the Fed is walking the tightrope of a faster-than-expected fall in inflation against the resilient economic backdrop, causing debate amongst policymakers on how fast to move ahead with rate cuts despite the level of real monetary restrictiveness continuing to drift higher amid concerns the growth strength could keep inflation buoyed moving forward. The market is pricing in just under half a rate cut for the March FOMC, a steep from from December when in the aftermath of the Fed's dovish pivot, it was briefly expecting 1 full rate cut.