The Federal Reserve is about to announce the decision from the June meeting, which has been the least impactful meeting so far this year.
1. No one expects an interest rate cut this time, and news from the Middle East and tariffs is dominating the headlines, so the market's attention to this meeting is very low.
This meeting has the typical characteristics of 'three lows and one high':
· Low Expectations: The market generally expects to hold steady;
· Low Attention: News heat is being overshadowed by the Middle East situation, EU tariffs, and the U.S. elections;
· Low Volatility Precedent: Recent volatility in U.S. stocks and bond markets has been kept very low, with the VIX remaining low.
However, precisely because of this 'compressed expectation' meeting, if the meeting brings some surprises, it may catch investors off guard.
2. The dot plot is the 'lifeline of risk assets'
The overall tone of the meeting may change, possibly avoiding hawkish signals to avoid angering Trump. The latest dot plot and economic forecast summary will also be released.
· Dot Plot: If it shows that the Federal Reserve still leans towards cutting rates twice this year, the market will view it as good news. If it shows only one rate cut, the market will see it as a significant negative. The likelihood of the second scenario occurring is quite high.
· Economic Forecast Summary: The Federal Reserve may raise its inflation forecast, increase its unemployment rate forecast, while lowering its economic forecast. The unemployment rate is the most important variable; if it rises close to 4.5%, the Federal Reserve may have to cut rates early.
3. Powell's press conference will be key in influencing the market. We believe his stance leans slightly dovish, but he will deliberately say some 'clearly hawkish' and 'clearly dovish' things to confuse the audience.
We may hear the following 'contradictory' expressions:
· Dovish: Emphasizes progress in slowing inflation; acknowledges that the labor market is 'rebalancing'; 'cautiously optimistic about premature rate cuts';
· Hawkish: Emphasizes the 'unfulfilled 2% target', data dependence, no commitment to a timeline, and a cautious attitude towards external factors such as tariffs.
The most likely scenario is 'verbal dovishness, dot plot hawkishness', to avoid a one-sided large fluctuation in the market.
