Washington, DC - US Federal Reserve headquarters building. Image source: Adam Parent © 123RF.com
The central bank in the US will be deliberating on its monetary policy this Wednesday, and the overall forecast is for the FED to maintain its federal funds rate at the current level of 2.50%
After the last decision of March this year, the FED stated that its primary goals are to “foster maximum employment and price stability”. Back then, we at @Trendsharks.com anticipated the FED to take a cautionary stance in regards its monetary ambitions for the rest of the year (you can read more about our initial forecast here) and hint at its possible future policies. The FOMC’s post-decision statement confirmed our initial speculations for the FED’s newly undertaken cautious stance:
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the targeted range for the federal funds rate may be appropriate to support these outcomes."
Essentially, the bank remains vigilant and reluctant to promise any future rate hikes unless the global financial developments change and strong labour and inflation data support the prospects for stable economic growth.
The unemployment data remained virtually unchanged in March compared to the same 3.8% for February, which means that the FED does not have an incentive to consider a rate hike, given the mixed reviews of the current labour data. As regards inflation, the data is much more promising, and the annually adjusted inflation rate reached 1.9% in March, which is an improvement from February’s 1.5% which was the result of a cautionary customer spending following the US Government Shutdown that started at the end of Q4 of 2018.
Overall, the FED is most likely to decide to maintain the rate at the current 2.50% level, given the somewhat poor performance of the labour market, despite the strong inflation performance, however, this time the FED has more incentives to comment on possible future hikes in the case of a robust NFP report this Friday. If they do, then the US dollar can be expected to gain strength and appreciate in the hours following the release of the report. On the other hand, if the FED maintains its current cautionary stance, then the US dollar might be expected to be pressured and depreciate.
The US dollar index managed to break above the significant resistance level of 97.72, which has contained the price within a range since mid-June 2017, on the positive advanced GDP forecast from the previous week. However, we are yet to see the more precise preliminaries and eventually the actual data, which might again drive the price below the resistance level if there turn out to be any discrepancies between these initial forecasts and the real GDP data.
Image source: Trendsharks ©, created with TradingView.com
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