- The Fed will release the minutes of its April 30-May 1 policy meeting on Wednesday.
- Discussions by Jerome Powell and co about the inflation outlook will be reviewed.
- Markets see a less than 40% probability that the Fed will leave policy rates unchanged in September.
The Federal Reserve (Fed) will release the minutes of its April 30-May 1 policy meeting on Wednesday at 18:00 GMT. Investors will pay close attention to comments regarding the outlook for inflation and the likely timing of a policy stance.
The Fed is widely expected to keep policy steady in June and July
The Fed left its monetary policy settings unchanged after its April 30-May 1 policy meeting, as expected. In its policy statement, the US central bank said there had recently been a lack of further progress towards the 2% inflation target. As for the quantitative tightening strategy, the Fed noted that they will slow the balance sheet decline by lowering the Treasury repurchase limit to $25 billion per month from $60 billion starting June 1.
At the press conference after the meeting, Fed Chairman Jerome Powell noted that it was unlikely that the next policy move would be another rate hike, but explained that it might be appropriate to hold off on a cut. of interest rates if inflation turns out to be more persistent and the labor market remains strong. Powell reiterated that they need to have greater confidence in inflation moving toward 2% before considering a policy pivot.
Data released by the US Bureau of Labor Statistics showed on May 15 that the core Consumer Price Index (CPI) rose 3.6% on an annual basis in April. This indicator followed the 3.8% growth recorded in March and was in line with market expectations. On a monthly basis, CPI and core CPI rose 0.3% after rising 0.4% in March.
According to the CME FedWatch Tool, markets see little or no chance of a Fed rate cut in June or July. The probability that the Fed will keep the key rate in September, however, remains around 37%.
Looking at the Fed’s release, “minutes from the most recent FOMC meeting are likely to draw attention next week following the Committee’s decision to communicate that ‘higher for longer’ remains the policy of choice in the near term,” TD Securities analysts said and added. : “Further color on the decision to reduce QT will also be in focus.”
When will the FOMC Minutes be released and how could it affect the US Dollar?
The Fed will release the minutes of the April 30-May 1 policy meeting at 18:00 GMT on Wednesday. Investors will pay close attention to discussions about the inflation outlook and look for possible hints on the timing of policy guidance.
Following the release of the April inflation report, some Fed policymakers adopted cautious language about the rate outlook, acknowledging modest progress in disinflation. San Francisco Fed President Mary Daly noted on Monday that while she expects shelter inflation to improve slowly, she said she does not expect progress to be rapid. Daly also noted that she is not confident that inflation is coming down steadily to the Fed’s 2% inflation target. Additionally, Fed Vice Chairman for Supervision Michael Barr argued that the Fed is in a good position to keep policy steady and watch the economy.
If the record shows that policymakers are leaning towards taking a patient approach to policy easing in the face of strong inflation and favoring a single rate cut later in the year, the US dollar (USD) could hold ground against its main rivals . If the release suggests that officials are increasingly concerned about growing signs of a slowdown in economic activity and remain optimistic about the outlook for inflation, risk flows could dominate markets and hurt the USD.
Eren Sengezer, Lead European Session Analyst, shares a brief technical outlook for the USD Index:
“The USD index (DXY) is hovering dangerously close to the 104.30-104.20 area, where the 200-day and 100-day simple moving averages (SMA) are located. In case the index falls below this zone and starts using it as resistance, technical sellers can take action. In this scenario, 103.70 (Fibonacci 50% retracement of January-April uptrend) could act as temporary support ahead of 103.00 (Fibonacci 61.8% retracement). On the upside, resistance can be seen at 105.25 (Fibonacci 23.6% retracement, 20-day SMA), 106.00 (static level, psychological level) and 106.50 (end of uptrend).
Fed Frequently Asked Questions
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main means of achieving these goals is the regulation of interest rates. When prices are rising too fast and inflation is above the Fed’s 2% target, it raises interest rates, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD), as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which weighs on the greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials—the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve rotating one-year terms. .
In extreme situations, the Federal Reserve may use a policy called quantitative easing (QE). QE is the process by which the Fed significantly increases the flow of credit in a blocked financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, where the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from bonds it holds to maturity to buy new bonds. It is usually positive for the value of the US dollar.
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