What Will the FED Do this Week? Another Pause!? How will USD React?

The Federal Open Market Committee (FOMC) is expected to maintain the current policy rates during its upcoming meeting. This decision aligns with recent communications from the Federal Reserve, which emphasize the need for greater confidence that inflation is moving sustainably toward the 2% target. The FOMC's statement will likely acknowledge further progress in reducing inflation but is expected to keep the forward guidance unchanged. The statement may subtly suggest growing confidence that the conditions for a future rate cut are developing, yet it is unlikely to provide a strong signal of a cut in September, as the markets have already priced in this expectation.

FED Economic Calander 

 Source: Finlogix Economic CalendarIn the post-meeting press conference, Chair Jerome Powell is anticipated to hint at the possibility of a rate cut in September. He may cite the FOMC's improved confidence in the trajectory of inflation and a more balanced outlook for inflation and economic activity. However, Powell is also expected to emphasize that any decisions will be made on a meeting-by-meeting basis, reflecting the Fed's cautious and data-driven approach.

Despite signs of inflation cooling and a moderating labour market, the FOMC will consider significant economic data expected in the coming weeks. The economy has shown resilience, as evidenced by stronger-than-expected Q2 GDP growth, which suggests there is no immediate need for rate cuts. This economic strength, coupled with a stable labour market, underpins the cautious stance likely to be taken by the FOMC.

Looking ahead, the baseline projection still anticipates two rate cuts this year, potentially occurring in September and December. This outlook assumes inflation remains moderate and economic growth continues steadily. However, should inflation data surpass expectations, the initial rate cut could be postponed until December. The FOMC's overall stance is expected to reflect cautious optimism, balancing the recent inflation trends and economic resilience with a flexible approach to future rate decisions.

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