Federal Reserve Chairman Jerome Powell discussed the decision to keep the federal funds rate unchanged at 5.25-5.5%. He emphasized that decisions will be based on data and the balance of risks. Powell noted that the economy has exceeded expectations and that the labor market remains tight. He highlighted that supply and demand conditions for labor are improving, but the restrictive stance could have a negative impact on economic activity and inflation. Powell also mentioned that recent data suggests the resilience of the economy and demand for labor, which could risk progress on inflation and potentially require further interest rate hikes. He acknowledged that financial conditions have tightened significantly.
The Federal Reserve announced that the policy rate will remain unchanged, in line with market expectations. The policy statement reiterated that economic factors would be considered in determining the need for additional policy firming. The statement highlighted that economic activity expanded at a strong pace in the third quarter, although job gains moderated. Inflation remains elevated, and the committee remains committed to achieving the 2% target. The statement acknowledged that tighter financial and credit conditions could weigh on economic activity, hiring, and inflation, but the full extent of these effects is uncertain. The committee is prepared to adjust its policy stance if risks to achieving the goals emerge. The vote in favor of the policy was unanimous.
Following the Fed’s interest rate decision, the US Dollar Index initially dropped slightly but then gained 0.18% on the day at 106.90. The table below shows the percentage change of the US Dollar against major currencies. The US Dollar was strongest against the Euro.
The Federal Reserve is expected to leave its policy rate unchanged for the second consecutive time, with a range of 5.25%-5.5%. Fed Chairman Jerome Powell will speak on the policy outlook and answer questions in a post-meeting press conference. The market anticipates no change in the policy rate, although there is a 20% probability of another 25 basis points interest-rate hike before the end of the year. Some economists believe the Fed has reached the end of its tightening cycle and expect rate cuts to start from March next year.
The Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy statement, followed by a press conference. The market expects no change in the policy rate, but a small chance of a rate hike in December. The rise in Treasury bond yields has tightened financial conditions, but recent data shows tight labor market conditions and a strong economy. Federal Reserve officials have taken a balanced approach in their public appearances leading up to the meeting. The market reaction to the policy decision will depend on whether the Fed adopts a hawkish or neutral stance.
In case the Fed decides against a rate hike in December, the US Dollar could weaken. However, a hawkish tone could revive expectations for another increase and strengthen the USD. A neutral stance could lead investors to refrain from taking large positions ahead of the jobs report. Analysts predict a hawkish tone from the Fed, but note that the bar is higher for the Fed to actually move the market. They also expect softer US data and strong China data to affect the USD.
Technical analysis for EUR/USD suggests a bearish tilt in the short-term outlook, as indicated by the decline below 50 in the Relative Strength Index (RSI) and EUR/USD falling below the 20-day Simple Moving Average (SMA).
