As noted earlier, most Fed officials plan to start cutting rates this year, halting the most aggressive rate tightening campaign in four decades in response to rising inflation. But they also emphasized that their actions depend on the change in the prices and will be determined by incoming data.
The average forecast released in December expected rates to fall 75 basis points to 4.6% in 2024. However, futures markets are betting that the Fed will cut rates six times this year, starting with a quarter-point cut in March.
Fed Chair Jerome Powell and several of his colleagues have stressed that the central bank can “proceed carefully,” suggesting they’re not in a rush. Powell said at his December press conference that it was premature to declare victory, though he acknowledged that the question of when to begin “dialing back” policy restraint had been discussed.
Bloomberg Economics comments on the Fed's stance as follows:
“The Fed has reached the end of its hiking cycle. With core inflation looking to be on track to approach Fed's 2% target (by some key metrics) in March 2024, the FOMC likely will be able to respond to faltering growth and rising unemployment with a first rate cut. We expect another 100 bps of cuts in the rest of the year, bringing the upper end of fed funds rates at the end of 2024 to 4.25%.”
There is also, as usual, the potential for short-term surprises. In particular, tomorrow the US December CPI will be published, and if it suddenly turns out to be higher than forecasted values, it will create conditions for a sharp short-term downward impulse for EURUSD.
The final recommendation is to sell EURUSD provided that the actual CPI estimates are higher than the forecasted values.
The profit could be fixed at the level of 1.0900. Loss — at the level of 1.0970.
This content is for informational purposes only and is not intended to be investing advice.
