The market will probably pay more attention to the tone of the monetary policy than the rate change, according to ICICI's research.
The US Federal Reserve will conclude its last monetary policy of this year on December 19.
It is expected to hike rates by 25 basis points to the 2.25-2.50 percent range, in line with the robust growth, low unemployment rate and inflation near the Fed’s 2% target, according to ICICI Research said in a research report. If rates are increased, it would be its fourth rate rise this year.
The market will probably pay more attention to the tone of the monetary policy than the rate change.
"The Federal Reserve could be transitioning to a more data dependent and less hawkish tone," ICICI said in the report.
The Fed is also likely to raise the interest rate on excess reserves (IOER) by 20 basis points to limit distortions in the US money market, the report said.
It expects Fed to indicate fewer rate hikes in 2019-20, based on statements given by Fed Chairman Jerome Powell and Vice Chair Richard Clarida.
The US Dollar Index (DXY), which measures the dollar against six currencies, could trade in a marginally lower range if the Fed provides a dovish tone.
"The DXY could trade in marginally lower range of 95.80-96.20 if the FOMC provides a dovish guidance as we are anticipating. However, concerns about growth in the non-US world could limit the downside possibility at least in the near-term," the report added.
US President Donald Trump has urged the Fed to avoid raising rates and making "another mistake".I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!
— Donald J. Trump (@realDonaldTrump) December 18, 2018
