Synopsis:

Credit Agricole anticipates that today’s FOMC meeting will deliver a 25bps rate cut, with forward guidance remaining data-dependent. While the ‘Trump trade’ has driven USD strength on expectations of fiscal stimulus and trade policies, the Fed is unlikely to make significant adjustments to policy guidance immediately, which could prompt a temporary pullback in USD positions.

Key Points:

• Expected Rate Cut: Credit Agricole expects the FOMC to cut rates by 25bps, with guidance indicating further easing as warranted by economic data.
• Data-Dependent Forward Guidance: The Fed’s approach will reflect cooling in the labor market and persistent core inflation, acknowledging recent resilience in the US economy.
• Market Expectations on ‘Trump Trade’: Fixed income markets are pricing in fiscal stimulus and tariffs under Trump’s administration, supporting higher growth and inflation in 2025, which has bolstered the USD.
• Risk of Limited Validation: Credit Agricole suggests it’s too early for the Fed to fully endorse the ‘Trump trade,’ and a more cautious tone could trigger profit-taking on recent USD gains.

Conclusion:

Credit Agricole expects a 25bps cut and cautious Fed guidance today, unlikely to fully align with aggressive market expectations of Trump-driven stimulus. This stance may temper USD strength in the near term, as FX investors react to the Fed’s gradual approach to shifting economic dynamics.