USD Undecided as FED Hint on Rate Cut, but Dismiss Employment
Yesterday, the FED held its meeting, discussing the possibility of rate cuts but expressed no immediate concern, leaving the USD indecisive.
Yesterday, the Federal Reserve convened its monthly meeting, discussing the possibility of further rate cuts but expressed no immediate concern, leaving the USD indecisive. US bond yields rose slightly across the curve following the announcement, while EUR/USD edged up by only 20 pips.
The market was likely anticipating a more definitive stance on a September rate cut, which did not materialize. They stated that they agreed to maintain the federal funds rate target range at 5.50%, emphasizing that it would not be appropriate to lower the target range until they are more confident that inflation is moving sustainably toward 2%. The Fed also noted that they will continue to reduce their holdings in Treasury securities, agency debt, and agency mortgage-backed securities.
FOMC Statement
According to the FOMC statement, recent data suggests that the economy has been growing steadily. Although job growth has slowed, the unemployment rate has increased but remains low. Inflation, while down over the past year, is still relatively high, however progress has been made recently towards the 2% inflation target. They believe there is a better balance between the risks and the potential to meet its inflation and employment targets.
Highlights from Jerome Powell’s Opening Statement
- Labor Market Status: The labor market is described as “strong but not overheated,” comparable to pre-pandemic levels.
- Inflation Expectations: Longer-term inflation expectations seem to be well anchored.
- Unemployment Rate: The unemployment rate remains low.
- Economic Balance: The labor market has cooled, inflation has declined, and risks have moved into a more balanced state.
- Dual Mandate Focus: The Fed is attentive to both aspects of its dual mandate.
- Inflation Confidence: Recent Q2 inflation readings have boosted confidence in the inflation outlook.
- Need for Confidence: There is a need for greater confidence in the inflation trajectory.
- Data-Driven Approach: Future policy decisions will be based on careful assessment of incoming data.
- Policy Readiness: Current policy is positioned to address potential risks and uncertainties.
In his opening statement, Powell highlighted a strong labor market akin to pre-pandemic levels and well-anchored long-term inflation expectations. While acknowledging cooling inflation and a balanced risk outlook, he emphasized the need for greater confidence in inflation trends. The Fed remains focused on its dual mandate and will continue to make data-driven decisions. Current policies are deemed well-positioned to manage risks and uncertainties.
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