What’s the takeaway from the Fed yesterday?

The FOMC meeting decision was as expected and the Fed made no new approaches to their next decision in March as well. Traders are now seeing the next rate cut to be for June with ~47 bps of rate cuts priced in for the year as a whole. The pricing here definitely reflects a step up in the last two weeks but they’re not materially different.

I mean, traders were pricing in ~42 bps of rate cuts for the year prior to the US jobs report earlier this month. So, there’s some context to the change we’ve seen in the latest couple of weeks.

Going back to the Fed yesterday, they tweaked their statement a little in removing the phrase “inflation has made progress”. It outlines a more neutral stance but at this stage, they will still be more inclined to cut rates again than the opposite.

And Fed chair Powell reaffirmed all of that in his press conference as he says that they were just “cleaning up” on the language and communication in the statement. Besides that, he also talked up the potential for further progress in the disinflation process and that saw the dollar get pulled back.

All in all, it still points to the Fed more than likely staying on hold again in March. That should be the bare minimum in terms of what is likely to be certain at this stage.

As for the first rate cut, the timing can easily fall between May to September depending on the data. But in all likelihood, the threshold to trigger the Fed to acting earlier may be higher than it would be to act later.

The inflation and labour market data will play a pivotal role in determining that. But at the same time, so will Trump.

He certainly wasn’t too pleased with the Fed’s position yesterday, as seen here. And he’s certainly aware that if he escalates trade tensions and enact tariffs, it’s going to give the Fed less certainty. And that means kicking the can down the road on the next rate cut.

Essentially, the Fed seems to have positioned this in a way now to say that “we’re ready to cut again if the data supports the narrative”. But at the same time, they’ve thrown the ball back to Trump’s court to enable that situation and let things fall into place.

This article was written by Justin Low at www.forexlive.com.