Fed officials will have a challenging task on their hands at upcoming policy meetings

Matthew Ryan, CFA Ebury

Federal Reserve officials will have a challenging task on their hands at upcoming policy meetings as they attempt to balance the myriad of economic implications from President Trump’s tariffs.

Fears surrounding a US recession have ramped up a notch or two amid clear signs of a deterioration in economic news and sky-high trade uncertainty. While a downward revision to the 2025 GDP projection seems highly likely on Wednesday, we don’t think that Chair Powell will warn of impending trouble just yet, and he may pour cold water over the possibility of a sharp slowdown in the US economy.

With inflationary pressures elevated and the US labour market still performing quite well, we think that Powell will again stress that the Fed is in no rush to cut.

We expect the “dot plot” to show just two 25bp cuts in 2025, as it did in December, which would provide officials with flexibility to either slow or accelerate the easing cycle dependent on economic conditions.

In our view, both recession concerns and the recent repricing in Fed rate expectations have been excessive, which may open the door to a rebound in the dollar from current levels.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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