Monex Europe: Fed is dialling it back

Monex Europe: Fed is dialling it back

29 januari 2024

Fed
Federal Reserve.jpg

In the first of two events that is likely to keep market focus on the US next week, the Fed delivers their first rate announcement of the year at 19:00 GMT on Wednesday. Without a Summary of Economic Projections to be delivered at this meeting, and rates expected to remain unchanged at 5.25-5.50%, the spotlight will be on Fed Chair Powell and his comments.

Key for markets will be the extent to which Powell runs back his December messaging. We suspect his comments last time out failed to hit the mark with traders as intended. Indeed, Powell seemed to confirm as much in the aftermath, suggesting that he was a little puzzled by the market reaction.

Just to illustrate how wild the market reaction was, an indication that the Fed expected to cut three times in 2024 and a suggestion that rate cuts may have been discussed by Powell, saw seven rate cuts priced by markets at one point over the Christmas holidays with the first of those coming in March. Whilst Powell’s comments undoubtedly marked a dovish shift in tone, in light of resilient data these observations were not sufficient to justify the rapid expectations move in our view.

Simon Harvey, Head of FX Analysis: 'Fortunately for the Fed, these have now retraced to more sensible levels, with markets now pricing between five and six cuts this year, though the March meeting remains a toss-up.'

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