USD: Powell to emphasize caution again – BBH
29.01.2025, 09:54

USD: Powell to emphasize caution again – BBH

US Dollar (USD) is firm ahead of the FOMC’s decision. The target range for the Fed funds rate is widely expected to be left unchanged at 4.25-4.50%, BBH FX strategists report.

Policy divergence continue to underpin USD strength

“The risk is the FOMC’s decision is not unanimous after Fed Governor Christopher Waller went full dove ahead of the media blackout. According to Waller ‘3 or 4 rate cuts is possible in 2025 if the data cooperates.’ In contrast, Fed funds futures and the FOMC median projection imply 2 rate cuts in 2025.”

“There is no Summary of Economic Projection. The next one is published in March. Meanwhile, Fed Chair Jay Powell’s post meeting press conference will be highly anticipated following US President Donald Trump’s jab at the Fed. Trump said that ‘with oil prices going down, I'll demand that interest rates drop immediately’. When asked if he believed Fed officials would listen to him, Trump responded, ‘Yeah.’ We expect Powell to emphasize again that the FOMC can be more cautious as we consider further adjustments to our policy rate.”

“Indeed, the bar for additional Fed funds rate cuts is high as US inflation is stalling above 2% and economic activity remains solid. The Atlanta Fed GDPNow model estimates above trend Q4 growth at 3.2% SAAR up from 3.0% on January 17. The final GDPNow update is due later today. Bottom line: monetary policy divergence between the Fed and other major central banks continue to underpin USD strength.”

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