16 Dec 2015
Happy FOMC Day! - TDS
FXStreet (Guatemala) - Cristian Maggio, Head of Emerging Markets Strategy at TD Securities explained that the day everyone has anxiously waited for has arrived. Today, the FOMC will hike the Fed Fund Rates by 25bps, the first hike in nearly ten years.
Key Quotes:
"Obviously they could decide to hold or hike more aggressively, but both scenarios look highly unlikely at this point."
"Today’s decision will have profound implications for the performance of assets, no matter how much is already priced in."
"The truth is that while a 25bps hike is pretty much on the cards, so much so that the real surprise would be no hike at all, the real focus will be on the Fed’s message."
"The FOMC statement and Yellen’s press conference will reshape expectations on the progression of policy normalization in 2016 much more than the initial announcement."
"But trading the immediate aftermath of the FOMC decision is complicated by a number of factors. First of all, how many previous events of this sort can we observe to infer the possible market reaction? Very few if none."
"Secondly, is the market going to take the decision at face value (risk negative) or will it value more its implications in terms of macro backdrop and reduction of uncertainties? I think the latter, but it may take time and there’s still a material chance that the initial reaction is the standard risk-off one."
"Lastly, about a third if not more of traders working in banking have never seen the Fed hiking once in their professional lives. The bulk of people on the trading floor of some major banks are under 30. How will they react? They may not be prepared for the reversal of the US interest rate trajectory, and even some of the most senior people may have forgotten this. It will take time to fine tune their responses."
Key Quotes:
"Obviously they could decide to hold or hike more aggressively, but both scenarios look highly unlikely at this point."
"Today’s decision will have profound implications for the performance of assets, no matter how much is already priced in."
"The truth is that while a 25bps hike is pretty much on the cards, so much so that the real surprise would be no hike at all, the real focus will be on the Fed’s message."
"The FOMC statement and Yellen’s press conference will reshape expectations on the progression of policy normalization in 2016 much more than the initial announcement."
"But trading the immediate aftermath of the FOMC decision is complicated by a number of factors. First of all, how many previous events of this sort can we observe to infer the possible market reaction? Very few if none."
"Secondly, is the market going to take the decision at face value (risk negative) or will it value more its implications in terms of macro backdrop and reduction of uncertainties? I think the latter, but it may take time and there’s still a material chance that the initial reaction is the standard risk-off one."
"Lastly, about a third if not more of traders working in banking have never seen the Fed hiking once in their professional lives. The bulk of people on the trading floor of some major banks are under 30. How will they react? They may not be prepared for the reversal of the US interest rate trajectory, and even some of the most senior people may have forgotten this. It will take time to fine tune their responses."