Fed Hold
The Fed is clearly unperturbed from the political pressures rising against it. Despite vocal opposition from President Trump and Treasury Secretary Bessent to lower rates, the Fed looks set to keep rates on hold for longer. The Fed was facing a tough decision moving into last night’s publication and subsequent press conference. That decision would have been made no more simple from the political pressures that have seen Chair Jay Powell and his Fed chastised in recent weeks.
In favour of lower rates stands political pressures that have fallen on deaf ears. These voices called for lower rates to support the economy. Inflation was falling, paving the way to further cuts. However, the suggestions of supply bottlenecks created by the upheaval of the terms of trade risk inflationary spikes. Supporting higher rates also is unemployment, in scope for the Fed’s mandate and remaining surprisingly elevated despite DOGE’s public sector employment cuts. The economy itself from a growth perspective remains solid but brings with it far more significant risks versus recent meetings thanks to Trump’s evolving tariff game.
So, what the Fed has done in the face of so many opposing forces is wait and see. This on hold narrative was clear yesterday evening with the next adjustment to rates now not priced in by the market until at soonest July. September may even be a more likely meeting date for the next cut especially if trade deal negotiations drag on. The Fed has been playing second fiddle to the White House as far as FX has been concerned. Valuations are unsurprisingly relatively unchanged this morning across key pairs. A marginally stronger Dollar reflects the steepening of the rates curve in Treasuries from Q4 onwards. GBP has been losing ground moving into this afternoon’s BoE decision where a 25-basis point cut is widely expected.
Discussion and Analysis by Charles Porter
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