The Federal Open Market Committee (FOMC) is likely to cut rates by 25 basis points, bringing the target down to 3.50-3.75%. Markets anticipate this change with around a 90% certainty. Important details to watch for include the Summary of Economic Projections (SEP), the number of dissenters, and Chair Powell’s press conference. There might be up to four dissenters this time, compared to only one in October. The Fed may also indicate just one rate cut for 2026 in the SEP, while markets expect nearly two cuts for that year. Growth and unemployment projections are under close examination, with GDP expected to be 1.8% for 2026, 1.9% for 2027, and 1.8% for 2028. Unemployment is projected at 4.4% for 2026 and 4.3% for 2027. In October, Powell’s press conference led to a significant rise in the dollar’s value, which might happen again. If the Fed makes a hawkish decision, the DXY could hit 99.60. However, weak job data and seasonal trends in December might mean today’s dollar rise will be short-lived. Today is the day of the Federal Reserve meeting, and the market has nearly fully accounted for a 25 basis point rate cut. This change would reduce the Fed’s target rate to a range of 3.50-3.75%. The specifics that accompany this cut are what really matter, particularly the economic forecasts and Chair Powell’s remarks. This cut may come with a hawkish tone, which could catch the market off guard. We should pay attention to the number of officials who disagree with the cut; if there are four dissenters, it would show a divided committee hesitant to ease policies further. The Fed might also suggest only one more rate cut for 2026 in their projections, much lower than what the market expects. Recent data supports the idea of a cautious Fed. The latest November Consumer Price Index showed core inflation steady at 3.4%, stickier than many anticipated. Plus, third-quarter GDP was revised to a strong 2.2%, indicating the economy is coping better with higher rates than expected. This robust economic outlook gives the committee’s hawkish members good reason to oppose more cuts. Chair Powell’s press conference in October led to a significant dollar rally due to similar concerns. He will face similar challenges today, as he needs to explain any dissent and justify the third consecutive rate cut. For traders, this means they should prepare for a possible dollar spike today, potentially pushing the DXY to 99.60. Short-term options can help position for this immediate volatility. However, this strength might not last beyond this week. Looking ahead, we expect a weak jobs report next week, with payroll forecasts around just 95,000, indicating a slowing labor market. This, along with the dollar’s usual seasonal weakness in December, suggests that any rally today should be viewed as a potential selling opportunity. Historically, the Dollar Index tends to weaken in the last weeks of the year, a trend we’ve seen before.

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