By eFXdata — Jan 27 - 10:15 AM
Synopsis:
Credit Agricole anticipates that the Federal Reserve will hold rates steady at this week’s January FOMC meeting, maintaining a cautious tone regarding future policy moves. The USD could face downward pressure if the Fed signals further easing may be necessary despite recent labor market improvements.
Key Points:
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Rate Hold Expected:
- The Fed is expected to keep rates unchanged, aligning with market consensus.
- Core PCE inflation, projected to remain sticky at 2.8% YoY, will be a key focus on Friday.
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Market Concerns Over Inflation Risks:
- FX investors remain wary that potential aggressive tariffs and immigration policies under the Trump administration could make inflation more persistent, limiting the Fed’s room to cut rates.
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FOMC Messaging Under Scrutiny:
- Powell’s press conference and the updated policy statement will be closely watched for signals on how the Fed views Trump’s policy mix and its implications for inflation and growth.
- Despite improving labor market data, the Fed may reiterate that policy remains restrictive and emphasize the need for further clarity before adjusting its stance.
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Impact on USD:
- The Fed’s acknowledgment of the need for further easing, coupled with its reluctance to endorse hawkish market pricing, could weigh on the USD in the near term.
Conclusion:
The January FOMC meeting is unlikely to deliver a hawkish surprise. The Fed’s cautious tone, coupled with concerns about the impact of Trump’s policies on inflation, may disappoint market expectations and apply downward pressure on the USD.
Source:
Crédit Agricole Research/Market Commentary