Citi on FOMC - FJElite

With our US economics team now expecting a hike at the FOMC’s meeting, we investigate cross asset reactions to the first Fed hikes using high frequency data. Historically, we find that first hikes have not been uniformly bearish on the day, as markets tend to digest much of the tightening risk ahead of start of policy tightening. At first glance, cross-asset reactions at the close on first hikes have been mixed, with US equities rising in four of the seven previous episodes in our sample and no consistent directional response across bonds, gold or FX. Under the hood from our intraday analysis across previous meetings (irrespective of hikes), gains in equities five minutes after the FOMC statement are typically unwound following the press conference, while initial declines tend to extend into the close. For bonds, reactions on FOMC releases have tended to have multi-day follow- throughs.