The Federal Reserve statement on Wednesday is extraordinarily crucial for a meeting that is not expected to be followed by an increase in the interest rate.
After some cleaning tasks, it will be the first time that the Fed chair organizes a press conference after a meeting that does not produce new economic forecasts, or that no increase in the rate is expected. Jerome Powell has said he will break with its predecessors this year and will address the public after each Fed meeting, and not just a quarter.
But this is far from the sole reason why the Wednesday meeting is unique. An unremarkable statement would mark the first time that the Fed ended its efforts to tighten monetary policy so late in an economic cycle, according to John Normand, one of the core strategy of JPMorgan's cross assets.
In January, Powell said the Fed would be "patient" to see how economic conditions evolved, and consolidated the market's opinion that the central bank is paused. In addition, interest-type traders do not expect the central bank to increase this year, as it checks whether the recent volatility of the markets frustrates the slowdown in the economy.
Normand waits for a six-month break before the Fed resumes raising rates. In this case, it would not be the first time the Fed paused only to continue walking when the recessive risks were withdrawn. In 1967, 1987, 1995 and 2016, events ranging from Black Monday to a recession of revenue interrupted the Fed's agenda.
However, this pause is unique, due to the delay in the cycle that the Fed is away from the hardening, said Normand.
Subsequently, he explained the evolution of the reason why this expansion was of late cycle. The list includes record indebtedness for American and Chinese companies, a rate of unemployment in invisible lows over the past 45 years, the negative moment of global revisions of earnings and liquidity below the means for futures of S & P.
"Perhaps it is more appropriate to refer to what is being developed as the first stop of the afternoon cycle of the Fed instead of its fifth half cycle," said Normand.
In this case, similar episodes can provide loose patterns with which to calculate what can happen later in the markets, he said. The strongest signal, however, is that for each market there are prices in a few months of interest rates waiting.
The bond market is later in this regard. The front of the profitability curve – the difference between the two year yield and the future fund rate of the Fed – is found to be almost nonexistent, which indicates that the stock index Traders' expectations remain low and unchanged.
Since the bond market has had a price in a Fed hiat, JPMorgan has a short US time, said Normand.
The variable and credit markets are more behind the curve in terms of pricing at a pause of the Fed. Stocks are marketed at a level that historically has been consistent with 10% earnings during a pause of the Fed. Such a concentration would determine how long the Fed pause, said Normand.
JPMorgan has overweight US equity in developed markets at the sight of a six-month Fed deposit.
The trade-weighted dollar and the stock is closer to its average levels during this Fed break.
"The modest drop in the dollar in 2016 seems to be the most likely road this year instead of the 1987 collapse, if we are correct that the Fed will resume H2 increases, while other major central banks, the whose policies coincide with the regional currencies (ECB), PBoC) are on hold, "said Normand.