4 min readThe Federal Reserve has cut interest rates for a third straight meeting. The Fed lowered rates by 25 bps to 3.5% to 3.75%, in line with expectations. The vote split was 9-3, showing a split committee, with Miran voting for a larger 50 bps cut while Schmid and Goolsbee voted in favour of leaving rates unchanged. This was the first time since 2019 that three policymakers voted against a decision, highlighting the division among policymakers.
The latest projections showed a meaningful upgrade to the growth outlook. Policy makers now expect the economy to expand 2.3% next year, up from 1.8% forecast in September. The Fed also trimmed its 2025 inflation forecast to 2.5% from 2.6%. However, this remains above the 2% target.
The Statement wording was changed to reflect that of the December meeting last year, just before the Fed paused rate cuts. The dot plot also continues to guide for one rate cut next year. However, the Fed also moved to expand its balance sheet once again, a surprise to the market.
Attention is now on Federal Reserve Chair Jerome Powell’s speech, where he said that he sees tariff inflationary impacts as temporary. The market is still pricing in 2 rate cuts next year. US stocks have risen to session highs, and the USD has fallen to a 6-week low after what is being interpreted as a moderately hawkish cut.
DOLLAR INDEX (DXY):
The US Dollar Index was trading lower ahead of the FOMC rate decision and has fallen further following the announcement, dropping to its lowest level since late October.
EURO vs DOLLAR (EUR/USD):
If we take a closer look at the technicals, we can observe how EUR/USD price was trading around 1.1665 before the decision, and post the decision and during the press conference we have seen price action spike higher to 1.17, A 2-month high.
S&P 500 (SDX):
The S&P 500 has also seen a direct impact from the decision and Fed Powel’s early comments. The price was trading +0.20% before the decision. Afterwards, the S&P 500 trades +0.75% at 6895, a 6 week high, breaking above its resistance zone.
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