On Wednesday the USD crashed 100 pips lower after the FED meeting, but made a swift reversal on Thursday and at the end of the week it ended up quite bullish as markets recalculated their bets. Over the weekend more FED members confirmed this bullish view for the USD.

DXY Index Chart Daily – Making Lower Highs

Raphael Bostic, President and Chief Executive Officer of the Federal Reserve Bank of Atlanta who will also be a voting member this year, provided insights over the weekend regarding the Fed’s monetary policy stance. Bostic revised his forecast, now predicting only one 25-basis-point rate cut in total this year, down from his previous expectation of two cuts. He anticipates this rate reduction to occur in the second half of 2024.

Bostic also expressed decreased confidence compared to December regarding the inflation outlook, stating that he is “definitely less confident” that inflation will continue to decline towards the Fed’s 2% objective. Raphael Bostic provided several key reasons for revising his stance on monetary policy:

FED’s Raphael Bostic Comments

• Stronger Economic Growth: Bostic noted that the economy has proven to be more resilient than previously anticipated, leading him to double his expected GDP growth estimate to 2%.
• Stable Unemployment Rate: He observed little to no change in the current unemployment rate of 3.9%, which was historically considered inflationary. This suggests that the labor market remains robust.
• Slower Inflation Decline: Although inflation is falling, it is doing so at a slower pace than expected. Bostic highlighted that many items are experiencing significant price increases, contributing to the slower decline in inflation.

Based on these factors, Bostic concluded that the balance of risks favors delaying rate cuts. He emphasized that having an economy growing above potential, with stable unemployment and moderating inflation, is a positive scenario. This gives policymakers room for patience, suggesting that just one rate cut is not a problem but rather a positive development.