USD Resumes Decline as FED Follows Market Pricing
Everyone had been anticipating yesterday’s FOMC meeting for quite some time, as markets were expecting the FED to point toward rate cuts which are to come, and yesterday they didn’t disappoint the expectations. Although markets had run a bit ahead of themselves with predictions of 114 bps of cuts in 2024, which made this meeting more intriguing.
But, Jerome Powell unleashed the doves yesterday, which sent the US dollar falling around 100 pips lower against everything else. The FOMC Dot Plot shifted toward market pricing, which means endorsing the market’s view rather than pushing back against market pricing of more than 100 points of FED cuts next year. The FED reduced the 2024 Dot Plot to 4.60% from 5.10%, which means a 90 bps reduction from the current 5.50%.
However, the market increased the pricing to 127 bps in rate cuts for 2024 after the FED meeting. The market is clearly more aggressive than the FED, so the FED leaning towards the market this time is a sign that the market is on the right track. The USD went down more than 100 pips as a result, with Treasury bond yields also going down.
Jerome Powell Q&A Session
- Noted that officials talked about path for cuts today
- Far too early to declare a soft landing
- I have always felt there was a possibility economy would avoid recession
- There’s always a possibility of recession next year
- Little basis for thinking there’s a recession now
- There was a general expectation that rate cuts will be a topic of conversation going forward
- We are pleased with progress but need to see further progress on inflation
- Fair to say that there is a lot of uncertainty
- There is a back-and-forth with market pricing
- In the long run, it’s important that market conditions become aligned with policy
- People will have different forecasts on the economy
- We’re still well above 3% on core PCE
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