Some back-and-forth on the Fed decision but not much change in markets on net

The short-term EUR/USD chart highlights the broader move in the US dollar over the FOMC statement.

The dollar rose initially as the statement removed a reference to progress on inflation. The thinking was that the Fed could be signaling it’s at neutral.

Powell quashed that notion as he said they’re still restrictive and that they can cut once they see progress on inflation. He added that they’re not in a hurry to cut rates but that’s no surprise to the market, which has priced in slightly less than 50 bps in easing.

With that the US dollar gave back the gains (and EUR/USD rebounded). Overall, the moves in both directions were small but notable.

A similar dynamic played out elsewhere with yields initially rising and stock markets falling; only to reverse course.

Backing out from the FOMC, it’s clear that the Fed wants to see how prior rate cuts are absorbed by the economy. Perhaps most-telling was a comment that they’re seeing progress on home-related inflation and ‘non-market’ inflation like in insurance. Both of those are the laggy type of inflation so that’s no big surprise but it should help them get close to 2%.

At the same time, the economy is in flux and politics are certainly tough to predict. The Fed has plenty of dry powder if the economy turns worse.

This article was written by Adam Button at www.forexlive.com.