Jerome Powell explains decision to leave interest rate unchanged

Federal Reserve Chairman Jerome Powell explained the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responded to questions in the post-meeting press conference.

Follow our live coverage of the Fed's monetary policy announcements and the market reaction.

Fed meeting press conference key quotes

"We will make decisions on totality of data, balance of risks."

"Economy has expanded well above expectations."

"Labor market remains tight."

"Supply and demand conditions for labor continue to come into better balance."

"Our restrictive stance is putting downward pressure on economic activity and inflation."

"Attentive to recent data showing resilience of economy and demand for labor."

"These could put further progress on inflation at risk, could warrant further interest rate hikes."

"Financial conditions have tightened significantly."

"We are not thinking or talking about rate cuts."

"We are focused on if we are sufficiently restrictive."

"The next question will be how long to keep policy restrictive."

""We are not considering changing the pace of balance sheet runoff."

"We've come far enough on policy that risks are now more two-sided."

"Letting higher inflation expectations get embedded is a prescription for misery."

"It's clear that inflation expectations are in a good place."

"The public believes that inflation will come down, that's critical in winning the battle."

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The section below was published at 18:00 GMT, right after the FOMC released its monetary policy statement.

The US Federal Reserve (Fed) announced on Wednesday that it left the policy rate, federal funds rate, unchanged at the range of 5.25%-5.5%. This decision came in line with the market expectation.

In its policy statement, the Fed repeated that in determining the extent of additional policy firming that may be appropriate, a range of economic factors will be taken into account.

Fed rate statement key takeaways

"Economic activity expanded at a strong pace in the third quarter, job gains moderated but remain strong."

"Inflation remains elevated, policy-setting committee strongly committed to returning inflation to the 2% target."

"Tighter financial and credit conditions are likely to weigh on economic activity, hiring and inflation, but the extent of the effects remains uncertain."

"Prepared to adjust policy stance as appropriate if risks emerge to achieving the goals."

"Vote in favor of policy was unanimous."

Market reaction to the Fed interest rate decision

The US Dollar Index edged slightly lower with the immediate reaction and was last seen gaining 0.18% on the day at 106.90.

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This section below was published at 13:00 GMT as a preview of the Federal Reserve interest rate decision.

• The Federal Reserve is widely expected to leave its policy rate unchanged at 5.25%-5.5%.
• Fed Chairman Jerome Powell will speak on the policy outlook in the post-meeting press conference. 
• The US Dollar valuation could be impacted by the statement language and FOMC Chairman Powell’s comments.

The Federal Reserve (Fed) is expected to leave its policy rate unchanged at the range of 5.25%-5.5% for the second consecutive time in November. The decision will be announced at 18:00 GMT and FOMC Chairman Jerome Powell will speak on the policy outlook and respond to questions in the post-meeting press conference, starting at 18:30 GMT.

The market positioning suggests that a no change in the Fed’s policy rate is fully priced in. However, investors still see a nearly 20% probability that the Fed will opt for one more 25 basis points (bps) interest-rate hike before the end of the year, as per the CME Group FedWatch Tool.

Economists at ABN Amro said that the Fed has reached the end of its tightening cycle and explain:

“We think July was the last hike of the cycle, and that benign core inflation readings will give the FOMC the confidence to keep policy on hold over the coming months.”

“We continue to expect the Fed to start cutting rates from next March. Falling inflation will push real rates higher, and the recent jump in bond yields also represents a significant tightening in financial conditions.”

When will the Fed announce policy decisions and how could they affect EUR/USD?

The Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy statement at 18:00 GMT. This will be followed by the post-meeting FOMC press conference at 18:30 GMT. Investors expect the Fed to leave the policy rate unchanged, while seeing a small chance of one more rate hike in the last policy meeting of the year in December. 

Following the Fed’s decision to stand pat on rates in September, the benchmark 10-year US Treasury bond yield has climbed from 4.3% to 5%. Although the rise in yields was largely driven by the selling pressure surrounding the Treasury bonds on government shutdown fears, it caused a further tightening of financial conditions. In his most recent public appearance at the Economic Club of New York, Chairman Powell acknowledged that higher bond yields could have implications for the policy and added that they could take some pressure off of the Fed to raise rates.

Meanwhile, recent data releases from the US reaffirmed tight conditions in the labor market and the strength of the economy. Nonfarm Payrolls rose by 336,000 in September, the biggest one-month increase since January, and the US economy grew at an annualized rate of 4.9% in the third quarter.

FOMC speech tracker: Balanced approach ahead of November 1 meeting

Federal Reserve officials modeled their vocabulary towards a more balanced approach on their public appearances during late September and October, before the 10-day blackout period ahead of their November 1 FOMC meeting and interest rate decision. Balanced remarks, even by FOMC policymakers who had been leaning clearly hawkish recently such as Neal Kashkari or Loretta Mester, were more frequent this time around. At the same time, some board members who had been more balanced during the spring and summer, have leaned more dovish in the fall, like Christopher Waller or Patrick Harker.

That said, the general tone going into the meeting is quite balanced, well represented by Fed Chair Jerome Powell speech at the Economic Club of New York on October 19 and the last eight recorded appearances from Fed members having been had a generally balanced tone.

Date	Speaker	Result	Quote
Sep 22	Bowman*	Balanced	Further interest rate hikes likely with inflation still too high
Sep 22	Daly	Balanced	We need to go at a slower pace
Sep 25	Goolsbee*	Hawkish	Rates will have to stay higher for longer than markets had expected
Sep 25	Kashkari*	Balanced	Consumer spending continues to exceed expectations
Sep 26	Kashkari*	Balanced	One more rate hike this year
Sep 27	Kashkari*	Balanced	There is a risk interest rates might have to go higher
Sep 28	Goolsbee*	Dovish	Fed could return inflation to target without a recession
Sep 28	Barkin	Balanced	FOMC has time to see data before deciding what’s next for rates
Oct 1	Williams*	Hawkish	Fed is at or near peak for the Federal Funds Rate
Oct 2	Bowman*	Hawkish	Will likely be appropriate to raise rates further
Oct 2	Barr*	Balanced	Most important question is how long to hold interest rates at a sufficiently restrictive level
Oct 2	Mester	Hawkish	Will likely need to hike rates one more time this year
Oct 3	Bostic	Dovish	No urgency for the Fed to do anything more
Oct 3	Mester	Balanced	Likely to favor hike at next meeting if current economic situation holds
Oct 5	Daly	Balanced	With rise in yields, no need for additional tightening
Oct 9	Jefferson*	Dovish	I will consider higher bond yields when assessing the future rate path
Oct 9	Logan*	Balanced	Less need to hike rates if higher long-term rates are due to higher premiums
Oct 10	Kashkari*	Hawkish	We may have to raises rates further if the economy stays too strong
Oct 10	Bostic	Balanced	We don't need to increase rates any more
Oct 11	Bowman*	Hawkish	Interest rates may need to rise further
Oct 11	Waller*	Dovish	Markets are tightening and will do some of the work for us
Oct 11	Daly	Balanced	If bond yields are tight, that could be the equivalent of another rate hike
Oct 13	Harker*	Balanced	We are at the point where we can hold rates where they are
Oct 16	Goolsbee*	Dovish	Fall in US inflation is not just a blip
Oct 16	Harker*	Dovish	Current interest rate environment draining housing market of new buyers
Oct 17	Barkin	Balanced	I believe we have a restrictive policy stance
Oct 18	Bowman*	Balanced	Inflation has come down but remains too high
Oct 18	Waller*	Balanced	Too soon to tell if more policy rate action is needed
Oct 19	Powell*	Balanced	Jerome Powell says higher bond yields are producing tighter financial conditions
Oct 19	Logan*	Balanced	Not yet convinced we are moving to 2% inflation
Oct 20	Harker*	Balanced	Rates will need to stay high for a while
Oct 20	Bostic	Balanced	I don't think Fed will cut rates before middle of next year
Oct 20	Mester	Balanced	Fed is at or near peak of rate hike cycle

*Voting members in 2023.

FOMC speech counter

	TOTAL	Voting members	Non-voting members
Hawkish	5	4	1
Balanced	16	8	8
Dovish	6	5	1

This content has been partially generated by an AI model trained on a diverse range of data.

In case the Fed shuts the door to a December rate hike, the market positioning suggests that the US Dollar (USD) could weaken further against its rivals with the initial reaction. On the other hand, a hawkish tone could revive expectations for one more increase and provide a boost to the USD. Powell might cite the above-mentioned data and argue that the economy is healthy enough to handle additional tightening.  

In case the Fed adopts a neutral stance and reiterates the data-dependent approach, investors could refrain from taking large positions ahead of Friday’s jobs report.

Analysts at TD Securities provide a brief preview of the potential market reaction to the Fed’s policy decisions:

“For the Fed, they will strike a hawkish tone, but we think the bar is higher for them to actually move the market. Markets are fully priced for US exceptionalism, and we note the decoupling of US macro trends and the US 10y yield.”

“We expect softer US data this week and another round of strong China data. With the USD running a new cyclical risk premium and long positioning quite elevated, the USD should struggle to hold onto recent gains this week.” 

Eren Sengezer, European Session Lead Analyst at FXStreet, shares his technical outlook for EUR/USD: “The Relative Strength Index (RSI) indicator on the daily chart declined below 50 and EUR/USD fell below the 20-day Simple Moving Average (SMA) early Wednesday, pointing to a bearish tilt in the short-term outlook.”

Eren also points out the key levels for the pair: “1.0500 (psychological level, static level) aligns as first support for the pair before 1.0450 (end-point of the July-October downtrend) and 1.0400 (psychological level, static level). On the upside, resistances are located at 1.0650 (20-day SMA, Fibonacci 23.6% retracement), 1.0750 (Fibonacci 38.2% retracement) and 1.0800 (100-day SMA, 200-day SMA).”