These are the 3 things investors should watch for on Wednesday:
1. Interest Rate Dot Plot: One of the most important aspects of the June FOMC will be the central bank’s interest rate projections, or dot plot. The last time the dot plot was released was in December. The March meeting was cancelled. At the time, policy-makers expected interest rates to remain unchanged until 2021. Of course, rates were much higher than they are now, so at a bare minimum, all interest rate projection levels will be notched lower. However, the big question is how long do policy-makers expect rates to remain at new lows? There’s no doubt that it will be throughout 2021, but they may not look for rates to increase until the end of 2022. The longer the duration to tightening, the more negative the impact on bond yields and the U.S. dollar.
2. Economic Projections: It’s been six months since the Fed’s last economic projections were released. On Monday, the National Bureau of Economic Research confirmed that the U.S. economy fell into recession in February. Its projections for 2020 growth will be ugly, but investors are prepared for that. Instead, it will be focused on how long before a meaningful recovery. While the following table below show broad based deterioration in the U.S. economy since the April meeting, more recent measures, particularly the jobs and manufacturing reports, have shown consistent improvements. The U.S. economy is on the road to recovery but will it take nine to 12 months, or two to three years? The faster the recovery, the better it is for the U.S. dollar.
3. Powell’s Outlook and Guidance: The last piece of the puzzle will be Fed Chairman Jerome Powell’s outlook and forward guidance. There’s no question that policy will remain accommodative for the foreseeable future and the door will remain open to more easing. However, will Powell believe that worse-case scenario has been avoided like his counterparts in other parts of the world? Does he see a stronger pickup in the second half as the labor market recovers? How worried is he about a second wave of the virus. Low interest rates and ample liquidity has been the main catalyst for the economic and stock market recovery – any hint that this could end could send the greenback and stocks plunging lower – a consequence Powell will be keenly aware of.