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The Fed will have a hard time satisfying everyone, from traders to Trump

This could be the toughest meeting of Fed Chairman Jerome Powell so far, whatever the outcome may be, chances are high that it will disappoint a large group of people, and President Donald Trump does not even count that.

The Fed started its two-day meeting Tuesday and at 2 pm ET Today, markets will plunge into what the Fed has decided on interest rates, future interest rate cuts and the economy. Most economists expect the Fed to pass down the key rate cuts, but in their opinion and in their forecasts they are moving to a tone suggesting that a rate cut, many believe it will take place in July, is imminent.

It gets difficult here. The Fed now says it is "patient" and ready to observe the incoming data and weigh up what to do with politics. Now that Fed officials have signaled in various comments that they could lower interest rates, markets are now expecting a new rate cut. This means that the Fed will probably change from "patient" to something else. Which other language is used could determine how restrained or outlandish the market will be.

"Given the market rates for a 1

: 5 chance of a cut in interest rates for the current meeting and a 100% chance of a cut by 25 [1945901] at the July meeting, it is relatively easy for the Fed to make risky assets to disappoint. " notes Alan Ruskin, head of G-10 foreign exchange strategy at Deutsche Bank. "The biggest dilemma for the Fed is to maintain the maximum political 'optionality' for July, without badly valuing risky assets."

Actually, it's a negative & # 39; revaluation & # 39; of risk-weighted assets – or simply a stock market sell-off – was the norm for the Fed session day since Powell replaced former Fed chairman Janet Yellen. Ruskin notes that the S & P 500 was below nine after every 10 Powell sessions.

Source: Deutsche Bank

"If the Fed shows significant flexibility and it is expected that the [dollar] will be stronger against almost all currencies as it has a strong downward interest rate bias in July but is somewhat dependent on advance commitment as it is data and policy dependent. "The Fed's next interest rate cut will be the first since it cut interest rates to zero at the end of 2008.

Powell speaks at 2.30pm to the press. ET after the meeting, and he could use this time to clarify the Fed's message.

"I know he is Mr. Volatility … he tends to generate a lot of volatility," said Ward McCarthy, Jefferies's Chief Financial Economist. "Who knows, especially if he follows Draghi's comment and Trump's tweet, and almost no matter what he does, he'll surprise someone." McCarthy is a minority of street economists who do not expect the Fed to lower interest rates this year.

On Tuesday, European Central Bank President Mario Draghi set a framework for the ECB to buy more assets and even cut negative interest rates. These comments caused yields in Germany and France to drop to record levels, and in the US to 10 years, just under 2%. Draghi was seen as a lever for the Fed to act more aggressively against easing as it widened the gap between US and European interest rates.

In a Tweet Trump criticized that the ECB had gone to a simpler policy, as this would drive the euro down against the dollar. He also criticized the Fed on Tuesday for not giving up, and when asked if he would demote Powell, he said, "Let's see what he does." The message on the Scatter Plot is, in the truest sense of the word, a chart showing which individual but anonymous Fed officials are specifying the path of the Fed Funds Rate. The dot chart still shows higher rates next year, and McCarthy said it could change.

"The Fed has been trying to get an option since last December, I think they'll do that today, but the dotted line is flat, they still have a positive slope and they'll clear that slope," McCarthy said. "For the most part, it puts the ball in Trump's court because it's the trade negotiations that determine things, Trump can get what he wants, and that's because he drops the ball."

Bespoke also studied the market after the Fed's meeting postponed and the decline in stock prices after the Powell meetings felt somewhat unusual.

"While the S & P typically trades higher on Fed Days, the S & P has fallen an average of 0.30% over the last 10 years, except for the 1.55% increase on the day of the session January 2019, the S & P is at 9 The last 10 Fed days: As the graph below shows, over the last 25 years, there have been just three more periods in which the average change in the S & P is 10 Fed days over has fallen into negative territory for several months, as has been the case lately, in early 2001, early 2006 and early 2014, "noted Bespoke.

The company also noted that the S & P average falls in the month following these moves as the Fed takes a step in either raising or lowering interest rates. In the month following the non-course rate sessions, the average increase was 0.9%.

"The Fed left interest rates unchanged for two consecutive sessions, and the month after each of the last two sessions, the S & P rose 4.17% and 2.97%, respectively, indicating that an Fed has been frozen that things are going smoothly, and that's exactly what it is. " Market tends to like – not too hot or too cold, "wrote Bespoke.

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