The Federal Reserve’s last rate decision of the year is this week, and another rate cut is on the horizon. The market is pricing in a 97% chance of a 25 basis point cut, so that’s pretty much expected. But the real action will come from the dot plot, inflation forecasts, and Fed Chair Jerome Powell’s press conference.

The announcement happens at 2:00 PM ET, followed by Powell’s press conference at 2:30 PM ET. If projections like the dot plot are released, they’ll drop with the rate decision. For traders, this is one of the most significant—and volatile—events of the year.

Let’s break it down.

What Matters Most

The dot plot is the star of the show. Back in September, the last dot plot projected 100 basis points of cuts in 2025.

• If this projection holds steady, it could be seen as dovish and push the US dollar lower.
• If it drops to 75 basis points of easing for 2025, this would signal a less dovish stance that might boost the US dollar.

Chair Powell’s press conference will also be key. Recently, he described the U.S. economy as "the envy of the world." While growth is slowing, the labor market is strong, and inflation is sticky. Powell’s tone and comments on inflation and future policy will drive the market’s reaction.

Pro tip: The most important points usually come within the first 15 minutes of Powell’s speech. During the Q&A, reporters often dive into the big questions that matter most—usually in the first three.

How to Trade It

There are three ways to trade the Fed rate decision:

1. Proactive Trading

If you’re confident in the outcome—like expecting the dollar to rally ahead of FOMC—you can buy dollars before the announcement. Just be cautious and consider either exiting your positions or reducing your exposure 5 minutes before the release.

2. Reactive Trading

With this approach, wait for the rate decision, dot plot, and projections to be released, let the market digest the news and then react based on how the market moves. Rate decisions tend to have continuation.

3. Standing Aside

Sometimes, the smartest move is not to trade. If the volatility feels too high, waiting until the next session to trade can save you from unnecessary stress. If the takeaway is significant, there should be opportunities to ride in the move in the Asia and European sessions.

What to Expect on FOMC Day

• 2:00 PM ET: The initial reaction happens immediately as the rate decision, dot plot, and projections are released.

- Fewer rate cuts or inflation concerns? Dollar should rally.

- Lower growth and more cuts? Dollar should fall.

• 2:30 PM ET: Right before Powell’s press conference, you might see some consolidation or profit-taking.
• During the Press Conference: Volatility spikes. Powell’s prepared remarks are critical, but the Q&A can add even more fireworks. By 3:00 PM ET, the market usually finds a clearer direction, which can carry into the Asia session.

Final Thoughts

The Federal Reserve’s final meeting of the year is a must-watch. Whether you trade before, during, or after the announcement—or decide to wait it out—understanding the key moments, like the dot plot release and Powell’s remarks, can help you navigate the action.

Stay prepared, expect volatility, and watch how the market reacts to every twist and turn!