Chair Powell: We want to see further progress on inflation

Federal Reserve Chairman Jerome Powell will address the decision to maintain the FFTR at 4.25%–4.5% following the January gathering. Speaking at the post-meeting press conference, Powell will shed further details behind the bank's decision and will answer questions from reporters.

Fed meeting press conference highlights

Economy has made significant progress toward goals.
Inflation has moved much closer to goal, somewhat elevated.
2024 GDP looks to have risen above 2%.
Investment in equipment appears to have slowed.
Labor market conditions solid.
Unemployment rate has stabilized, remains low.
Labor market conditions broadly balanced.
Labor market not a source of inflationary pressures.
Labor market not a significant source of inflation.
Total PCE rose 2.6% in 12 months to December, core PCE rose 2.8%.
Risks to achieving goals roughly in balance.

Forecasts are highly uncertain.
Currently some elevated uncertainty because of significant policy shifts, but should be passing.
Right now forecasts on policy are in the nature of a placeholder.
Looking at the data to guide us.
Right now in a very good place.
Economy is in quite a good place as well.
Expect to see further progress on inflation.
Right now see things in a really good place for policy, the economy.
We don't need to be in a hurry to make any adjustments.
We are working to align our policies with executive orders under applicable law.

We don't think we need labor market to cool off any more.
Overall labor market does seem to be stable, broadly in balance.
Flows across border have decreased, every reason to think that will continue, but job creation is also down.
Together those could be a reason for unemployment rate to stabilize.
Fed runs a very careful budget process.
Left NGFS because its work has broadened significantly, and intended to mobilize transition.
NGFS activities is way beyond any plausible Fed mandate.
Many activities of NGFS are not a good fit for the Fed.
Dont't want to be speculating about tariffs.

This section below was published at 19:00 GMT to cover the Federal Reserve's policy decisions and the immediate market reaction.

The Federal Reserve (Fed) announced on Wednesday that it has kept its Federal Funds Target Range (FFTR) unchanged at 4.25%–4.50%, in line with broad market expectations. This decision follows the 25 basis point rate cut in December as the Fed continues to navigate the delicate balance between supporting economic growth and managing inflation.

Indeed, the Fed announced on Wednesday that it has kept interest rates unchanged, offering little indication of when further rate cuts might occur.

Officials highlighted that inflation remains above the Fed's target, while economic growth continues and unemployment remains low.

In its latest policy statement, the Fed acknowledged that inflation data has been stagnant in recent months. 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." Officials expressed confidence that progress in reducing inflation will likely resume later this year but emphasized the need to pause and await further data to confirm this outlook.

The statement also noted that economic activity has been expanding at a solid pace, with the unemployment rate stabilising at low levels and labor market conditions staying robust.

The Federal Open Market Committee (FOMC) added that any decisions about future adjustments to interest rates will depend on incoming data, the evolving economic outlook, and the balance of risks, signaling a cautious and data-driven approach going forward.

Market reaction 

The US Dollar regains strength and advances past the 108.00 barrier, putting recent peaks to the test following the Fed's decision and ahead of the press conference by Chair Jerome Powell.

This section below was published as a preview of the Federal Reserve's policy decisions at 11:00 GMT.

• The Federal Reserve is widely expected to leave monetary policy settings unchanged following the January meeting.
• Fed Chairman Powell’s presser could provide important clues about the rate outlook.
• The US Dollar could come under bearish pressure if the Fed leaves a rate cut in March on the table.  

The United States (US) Federal Reserve (Fed) will announce monetary policy decisions following the first policy meeting of the year on Wednesday. Market participants widely anticipate that the US central bank will leave monetary policy settings unchanged after cutting the interest rate by 25 basis points (bps) to 4.25%-4.5% in December.

The CME FedWatch Tool shows that investors virtually see no chance of a rate cut in January, while pricing in a 33% probability of a 25 bps reduction in March. Hence, the statement language and comments from Fed Chairman Jerome Powell could drive the US Dollar’s (USD) valuation, rather than the interest rate announcement. 

“The FOMC is widely expected to maintain its policy stance unchanged at 4.25%-4.50% next week, with Chair Powell expected to communicate what's likely to be a cautious process for policymaking in the near horizon, while still espousing an easing bias,” said TD Securities analysts previewing the Fed event. “In our view, decisions by Fed officials, while still highly data-dependent, are increasingly turning more Trump-dependent,” added.

When will the Fed announce its interest rate decision and how could it affect EUR/USD?

The US Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy statement on Wednesday at 19:00 GMT. This will be followed by Fed Chairman Jerome Powell's press conference starting at 19:30 GMT. 

The revised Summary of Economic Projections (SEP), also known as the dot plot, published after the December policy meeting showed that policymakers are projecting two 25 bps rate cuts in 2025. In the press conference, Chairman Powell explained strong economic growth, low unemployment and expectations for higher inflation were primary reasons for projecting a slower policy-easing path.

The most likely scenario for the Fed is to reiterate its data-dependent approach to policy and for officials to wait for US President Donald Trump’s trade and other economic policies to take shape. “We expect significant policy changes, we need to see what they are and the effects to get a clearer picture,” Powell said at the presser in December. 

In case Powell adopts an optimistic tone about the inflation outlook after Trump refrained from imposing day-one tariffs and voiced his willingness to work with China on trade issues, markets could see that as a sign pointing to a rate cut in March and weigh on the USD with the immediate reaction. On the other hand, investors could adopt a cautious stance if Powell talks about the potential undesired effects of proposed 25% tariffs on imports from Canada and Mexico, two of the biggest US exporters, on inflation. In this scenario, the USD could gather strength against its rivals.

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD:

“EUR/USD remains technically bullish on the daily chart, with the Relative Strength Index (RSI) indicator rising above 60 for the first time since late September. Additionally, the pair holds comfortably above the 50-day and the 20-day Simple Moving Averages (SMA).”
“On the upside, the Fibonacci 38.2% retracement level of the October-January downtrend aligns as the first resistance level at 1.0580 ahead of 1.0670-1.0700 (Fibonacci 50% retracement, 100-day SMA). In case the pair drops below 1.0440 (50-day SMA, Fibonacci 23.6% retracement) and starts using this level as resistance, technical sellers could take action and open the door for an extended slide toward 1.0350 (20-day SMA) and 1.0200 (end-point of the downtrend).