What to expect from the Fed’s interest rate decision

Investors expect the Federal Reserve to announce a rate cut of 25 basis points after the two-day FOMC meeting, which ends on Wednesday.

Looking ahead, the CME’s FedWatch Tool assigns a 95% probability to a further quarter-point cut in December.

Traders will be watching closely for any guidance from Fed Chair Jerome Powell over future rate cuts, especially given growing concerns about labour market weakness.

With the ongoing government shutdown limiting economic data releases, the Fed faces a more uncertain policy backdrop than usual. But perhaps the most important aspect of tomorrow’s announcement will be any further details that Mr Powell provides over the ending of quantitative tightening (QT), or the Fed’s balance sheet reduction programme.

He signalled that this was the Fed’s plan back in September. But he didn’t give much guidance concerning when it would start or at what pace. Rolling back QT would mean additional monetary stimulus for markets.

The promise of easier monetary policy from the Fed has helped push US stock indices to a succession of record highs, and this has dragged global indices up as well. Add in the prospect of a trade deal between the US and China, and expectations of strong earnings from the US tech sector, and you have a heady brew sloshing around the punchbowl.

The question for traders is, just how much they can drink before they start to feel decidedly queasy.”