Aside from the US President, it is widely anticipated that the US Federal Reserve will maintain current interest rates at today’s meeting. The subsequent statement is also expected to reiterate familiar themes: ongoing uncertainty surrounding the impact of US trade policies remains a significant factor, necessitating further observation of economic data, particularly inflation figures, to accurately assess the balance of risks. Several members of the Federal Open Market Committee (FOMC) have previously signaled this cautious approach. Consequently, the Fed meeting risks becoming a non-event for the dollar, despite the market volatility observed in recent weeks, according to Thu Lan Nguyen, Head of FX and Commodity Research at Commerzbank.
Powell faces renewed political pressure on cuts
“Fed Chair Jay Powell will inevitably be questioned about the US President’s criticisms. However, his response will likely echo previous statements on the matter. The independence of the US Federal Reserve is legally enshrined and protected. Today, Powell should still be able to project an image of the Fed as an independent entity capable of resisting political pressure to lower interest rates.” Powell’s challenge lies in balancing the Fed’s mandate of price stability and full employment with external political pressures. The market will be closely scrutinizing his words for any hint of influence.
“A progressively weakening economy is likely to intensify political pressure on the Federal Reserve. The longer the Fed can maintain its stance and resist this pressure by holding interest rates steady, the more supportive it will be for the dollar. Conversely, any indication that the Fed is preparing to cut interest rates would likely weaken the US currency. In such a scenario, it would be difficult to dispel the perception that political pressure has influenced the decision. Our US economic analysts predict that the Fed will wait until September before implementing its first rate cut. Until then, this perceived steadfastness should provide support for the dollar.” This outlook hinges on incoming economic data, including inflation, employment, and GDP growth. Any significant deviation from expectations could alter the Fed’s course and impact the dollar’s trajectory. Furthermore, geopolitical events and global economic conditions will also play a crucial role in shaping the Fed’s policy decisions and the dollar’s performance.
