FOMC Preview: hike on the table… too little too late?

• US Federal Reserve expected to raise rates, but if it doesn't, it still has room to do it later.
• ECB's Thursday announcement may overshadow the US Central Bank decision.

Are you going to be surprised if the US Federal Reserve pulls the trigger and raises rates this week? Even worse, are you going to be surprised if the Fed remains on hold? Actually not right? One of the things about the "forward guidance" invented 10 years ago, is that central banks have lost the ability to surprise the markets in most cases, as they take time to anticipate the move, and by the time it happens, the decision is already priced in. In this particular case, is true that many are expecting a 25bps hike, but it probably won't be a big disappointment if they don’t, as so far they have promised three hikes this year, and those could happen in September and in December, usually, the ones considered "live" meetings.

What would be tradable, and could have the "surprise factor" is the accompanying statement. The wording in the document is what will let investors know what the future may bring and a reason to rush into pricing it in. What the market is actually expecting right now, is the dot plot to remain at three hikes for the year, while no clear picture will likely emerge for future years. Any change in it indicating four rate hikes for this year, with an actual hike included, should be dollar bullish, particularly against safe-havens yen and gold, as market's mood is already positive ahead of the Fed. If there's a clearer consensus about how the Fed will act in the upcoming years, the greenback will receive an additional boost. A rate hike, with no changes in the dot-plot, on the contrary, would be a mild disappointment and probably benefit high-yielding assets as Aussie or the EUR. The Pound has its self Brexit woes to deal with these days and could be better to stay away from it.

Market's attention will focus additionally in chief Powell, as this is going to be just its second live meeting. Jerome Powell hesitated a bit in the previous presser and made no commitments to the future. For sure, he is worthy of the position he fills, giving precise answers and straight to the point to journalists, meaning that we may see more intelligent questions this time, and the answers will probably be much juicier than those of Yellen's speeches, amid his business-like approach.

Ahead of the event, Fed's Williams gave a hint over a possible change in the wording, as he sees less need for forward guidance now that rates head towards neutral, and the notion of "accommodative" monetary policy has lost its relevance. Brainard said something similar a day before, somehow hinting the market's that they could remove it from the statement. Such thing will be considered hawkish, and therefore benefit the greenback.

In the following European session after Fed's decision, the ECB's monetary policy meeting will take place. That could limit the reactions further if the US Federal Reserve outcome does not diverge much from market's expectations. Last week the ECB shocked the markets by anticipating they could discuss QE tapering as soon as this Thursday, which means that the common currency could be the one benefiting the most from a dollar-negative outcome of Fed's announcement.

One way or the other, no one expects the Fed to bring big surprises, but surely the event can shake the market in the short-term. Anyway, pure speculative interest may prefer to wait for Thursday ECB's meeting.