Yesterday, the Fed officials decided unanimously to leave the benchmark federal funds rate in a range of 5.25% to 5.5%, the highest since 2001, for a fifth straight meeting. They also penciled in just three reductions in 2025, down from the four forecast in December, based on the median projection.
The Fed’s post-meeting statement was nearly identical to January’s, maintaining the guidance that rate cuts won’t be appropriate until officials have more confidence inflation is moving sustainably toward their 2% target.
The recent pickup in monthly inflation didn’t sway Fed Chair Jerome Powell’s message Wednesday that price pressures will continue to ease or that it will likely be appropriate to lower rates at some point this year.
Speaking after the Fed’s two-day policy meeting in Washington, Powell also said it would be appropriate to slow the pace at which the Fed reduces its bond holdings “fairly soon.”
Nearly half of Fed officials would prefer two or fewer rate reductions in 2024, according to their updated economic projections, and it’s clear policymakers need more data confirming a downward inflation trend before lowering borrowing costs. They see higher underlying inflation, substantially stronger economic growth and lower unemployment in 2024 than forecast in December.
Powell largely ignored the higher inflation reports, and traders raised the probability that the Fed would begin rate cuts in June.
The Federal Open Market Committee did adjust its language around the labor market, noting “job gains have remained strong,” though the Fed chief said “an unexpected weakening in the labor market could also warrant a policy response.”
Policymakers also slightly lifted their forecasts for where they see rates settling over the long term, boosting their median estimate to 2.6% from 2.5%, following speculation from economists that higher rates may persist in the post-pandemic environment.
This implies rates will need to stay higher for longer in the future.
EURUSD made a sharp upward move towards the 1.0935 level after yesterday's comments.
However, as the Fed did not announce anything new from a fundamental point of view, we should expect EURUSD to return to the mid-range in the near future, towards its nearest technical support at 1.0900.
The overall recommendation is to sell EURUSD. Take profits at the 1.0900 level. Stop loss at 1.0965.
This content is for informational purposes only and is not intended to be investing advice.
