Today is the heavily marketed Fed meeting where the markets are looking to get some insights into the easing (almost no one expects a hike) timetable for 2019. This is coming off the back of the news from the ECB, where Draghi is proving not to be a lame duck and has started to talk up easing policy should the markets continues in the current trend.
With all of this easing talk (and some positive tweets about the trade negotiations) we are seeing US markets nearing their all time highs which is great news for investors but raises some questions about the near future. Should more money be allocated to US stocks in the coming months? Should money be taken off the table? The answer to these are all based on the underlying reality vs the projections of the markets. A Fed cut is a good thing under the assumptions it is in anticipation of a slowdown in the second half of the Year. With the Fed getting ahead of any negative data in the US, the markets will be able to avoid the sell-off that would accompany an adjustment in growth expectations. If the cuts come as a reaction of negative data in the markets we will see the markets adjust to the news until they can determine that the easing policies of the Fed have been effective. Some argue that it would be harder to turn sentiment with only 250 basis points to cut so getting ahead of the data is key.
Insights into this will come from the Fed "dot plot" where the members of the FOMC all predict where interest rates will be at certain times in the future. For the early scenario to be in play we should see significant moves downward in these dots as the voting members change their expectations. A lower expectation of the longer term interest rates will point towards the committee feeling they will be unable to avoid the slowdown with early cuts and there will be a longer trend in "lower for longer" along side other major economies.