Fed sticks to hawkish rhetoric, according to FXS Fed Sentiment Index

Following the first policy meeting of the year, the Federal Reserve (Fed) announced that it left the policy rate unchanged at 4.25%-4.5% in a widely anticipated decision. In its policy statement, the Fed acknowledged that inflation data has been stagnant in recent months. Additionally, the central bank removed earlier language suggesting inflation had "made progress" toward its 2% target, instead stating that the pace of price increases "remains elevated."

In the post meeting press conference, Chairman Jerome Powell reiterated that they don't need to be in a hurry to make adjustment to monetary policy, citing elevated uncertainty because of potentially significant changes to economic policies under the Trump administration.

FXStreet (FXS) Fed Sentiment Index rose above 120 from around 107 before the event, suggesting that the Fed adopted a more hawkish tone after the January meeting. 

Comments from Fed policymakers on the policy outlook confirmed the hawkish rhetoric, with the FXS Fed Sentiment Index edging only slightly lower to 120.

Fed Vice Chairman Philip Jefferson said late Tuesday that they were facing uncertainty around government policies, adding that the strong economy would allow them to adopt a cautious approach to further policy-easing. Similarly, "the Fed can take its time to look at data and policy changes," San Francisco Fed President Mary Daly. Finally, Chicago Fed President Austan Goolsbee noted that fiscal decisions impacting prices or employment will require careful consideration, arguing that they should slow the pace of rate cuts due to uncertainties.