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- The Federal Reserve is widely anticipated to maintain the current policy rate for the third consecutive meeting.
- Federal Reserve Chairman Jerome Powell is scheduled to address the policy outlook in a highly anticipated press conference.
- The US Dollar may exhibit continued strength against other currencies if the Federal Reserve maintains a vigilant focus on the inflation outlook.
The United States Federal Reserve is poised to announce its monetary policy decisions following the conclusion of its May policy meeting on Wednesday. Financial markets overwhelmingly expect the US central bank to hold steady on its policy settings, marking the third consecutive meeting without alteration. This follows a 25 basis point reduction in the interest rate in December, which brought the target range to 4.25%-4.5%.
According to the CME FedWatch Tool, market participants are assigning a negligible probability to a rate cut occurring in May. Looking ahead, the tool indicates that the market is pricing in approximately a 30% chance of a 25 basis point rate reduction in June. Consequently, investors and analysts alike will be meticulously examining the nuances of the policy statement and closely monitoring the remarks delivered by Federal Reserve Chairman Jerome Powell during the post-meeting press conference. The primary objective will be to glean any new insights or indications regarding the potential timing of the next adjustment to interest rates. Market participants will be particularly interested in any forward guidance provided by the Fed regarding its assessment of economic growth, inflation, and labor market conditions, which will heavily influence future policy decisions.
Leading up to the Federal Reserve’s customary blackout period, a number of policymakers articulated their apprehensions regarding the uncertainties stemming from the evolving US trade landscape and its potential impact on the labor market. These concerns centered on the possibility that new trade policies could disrupt supply chains, increase costs for businesses, and ultimately lead to a slowdown in hiring or even job losses. Furthermore, some policymakers expressed worries about the potential for retaliatory measures from other countries, which could further exacerbate the negative effects on the US economy. The Fed will likely continue to monitor these developments closely as it assesses the overall economic outlook and makes future policy decisions.
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