Fed's Jerome Powell: The law does not permit to demote a Fed Chair

Federal Reserve Chairman Jerome Powell explains the decision to reduce the Federal Funds Target Range (FFTR) by 25 basis points to 4.50%-4.75% following the November meeting and answers questions during the subsequent press conference.

Key Quotes

Fed took another step in reducing policy restraint.

The labour market remains solid.

Inflation has eased substantially.

I continue to be confident that with recalibration of stance, inflation moves sustainably down to 2%.

Unemployment rate has edged down in past 3 months, remains low.

In near term election will have no effect on policy decision.

Economy is hard to forecast beyond near term.

I don's know timing, substance of policy changes.

Will see where bond rates settle, too early to say where.

Appears that moves in bond rates are not mostly about higher inflation expectations.

Bond rates are reflectinbg growth expectations.

Some of the downside risks to economy have diminished.

Will make a decision on rates as we get to December.

We're trying to steer between moving too quickly and moving too slowly.

We are on a path toward a more neutral stance.

We have gained confidence on inflation moving toward 2%.

We don't want to do a lot of forward guidance.

There is a fair amount of uncertainty.

Saying 'further progress' suggests we are setting up a test.

The point is to find the right pace, need to find that as we go.

Policy is still restrictive.

We don't need further cooling in labour market to achieve inflation target.

Today's decision is another step in process of recalibration.

We are prepared to adjust assessments of pace and destination for rates.

If labour market deteriorates, we could move more quickly.

We expect there to be bumps on inflation.

Overall you see progress on inflation.

Labour market is not a source of inflationary pressures.

One or two bad data months on inflation won't change the process.

The right way to find neutral is carefully.

As economy remains strong, can try to navigate middle path between two risks.

Policy is aimed at keeping labour market in a good place, and maintaining progress on inflation.

Wage growth is now consistent with 2% inflation, given productivity at this level.

I would not go if President asked me to leave.

The US fiscal path is unsustainable.

Economy and policy are both in a very good place.

There is a risk that we move too quickly, to avoid it you have to move carefully.

The other risk is we move too slowly, and that says, don’t get behind the curve.

We try to be in the middle, manage both risks.

Overall inflation expectations are consistent with 2% inflation.

Our baseline is we will gradually move rates towards neutral.

Rising rates is not our plan.
 

Market reaction

The US Dollar remains largely on the defensive following the Fed's decision to lower its rates by 25 bps, as was largely anticipated. The US Dollar Index (DXY) revisits the 104.50 region, fading part of the post-Trump strong climb to the boundaries of the 105.00 barrier in the previous day.

This section below was published after the Federal Reserve's interest rate decision at 19:00 GMT.

In line with market expectations, the Federal Reserve lowered its Fed Funds Target Range (FFTR) by 25 basis points at its meeting on Thursday. This decision comes after a 50 basis point cut at the September 18 meeting.

In the statement, policymakers observed that the job market has "generally eased" while inflation continues to move closer to the Federal Reserve's 2% target. Despite the low unemployment rate, "labour market conditions have generally eased," they noted.

The Fed indicated that risks to the job market and inflation were "roughly in balance," echoing language from its September statement.

In a slight adjustment, the new statement described inflation as having "made progress" towards the Fed’s target, instead of the previous phrase "made further progress." The statement highlighted that the personal consumption expenditures price index, excluding food and energy—a key measure of inflation—has shown little change over the past three months, maintaining an annual rate of about 2.6% as of September.

This section below was published as a preview of the Federal Reserve's interest rate decision at 06:00 GMT.

• The Federal Reserve is widely expected to lower the policy rate after Donald Trump won the US presidential election.
• Fed Chairman Powell’s remarks could provide important clues about the rate outlook.
• The US Dollar rally could lose steam in case the Fed leaves the door open for another rate cut in December.  

The US Federal Reserve (Fed) will announce monetary policy decisions following the November policy meeting on Thursday, just barely two days after Donald Trump was elected as the 47th president of the United States. Market participants widely anticipate that the US central bank will lower the policy rate by 25 basis points (bps) to the range of 4.5%-4.75%.

The CME FedWatch Tool shows that investors are fully pricing in a 25 bps cut, while there is a nearly 70% probability of another rate reduction in December. The market positioning suggests that the US Dollar (USD) faces a two-way risk heading into the event.

Donald Trump’s victory in the presidential election triggered a rally in the US Treasury bond yields and boosted the USD on Wednesday. Additionally, Republicans gained the majority in the Senate and looked on track to control the House, paving the way for faster implementation of policies.

Assessing the outcome of the election, “Republican clean sweep makes it significantly easier to implement full policy agenda. Risks very firmly tilted to the downside for US and global economic growth and to the upside for US inflation,” said ABN Amro analysts in a recently published report. 

“While Fed policy could be tighter than our current base line, the ECB could cut rates faster. Republican sweep sets the stage for US-European rates divergence. Parity for EUR/USD could be on the cards,” they 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 Thursday at 19:00 GMT. This will be followed by Fed Chairman Jerome Powell's press conference starting at 19:30 GMT. 

A 25 bps rate cut is unlikely to trigger a significant market reaction because this decision is already priced-in. But investors will pay close attention to comments from Chair Powell in the post-meeting press conference, which could be more market-moving.

In case Powell leaves the door open for one more 25 bps rate cut in December, the immediate reaction could hurt the USD. Powell will surely be asked about the potential impact of proposed Trump policies on the inflation and growth outlook. The Chairman is likely to refrain from commenting on these issues and reiterate the data-dependent approach to policymaking, regardless of the winner of the election. 

If Powell voices concerns over the potential impact of tariffs on inflation expectations, this could be seen as a sign that the US central bank could take its time to ease the policy further. In this scenario, the USD could extend its weekly rally and cause EUR/USD to stretch lower. 

Nevertheless, it’s too early for policymakers to assess the potential changes to the monetary policy due to proposed policies during the campaigning period. In December, the Fed will publish the revised Summary of Projections and that publication is likely to provide more useful information on what officials expect from the economy under the Trump administration.

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

“EUR/USD remains technically bearish following the sharp decline seen on Wednesday. The Relative Strength Index (RSI) indicator on the daily chart stays slightly above 30, suggesting that the pair has more room on the downside before turning technically oversold.”

"On the downside, static support seems to have formed at 1.0700 before 1.0600 (static level from April) and 1.0500 (static level from October 2023, round level). In case EUR/USD gathers recovery momentum on a dovish Fed tone, it could face strong resistance at 1.0870, where the 200-day Simple Moving Average (SMA) is located. Technical buyers could take action once the pair flips that level into support. In this scenario, the 100-day SMA coils be seen as next hurdle at 1.0940 before 1.1000 (static level, round level)."