Jerome Powell comments on rate outlook after keeping policy settings unchanged

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

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

Fed meeting press conference key takeaways

"A broad set of indicators suggest the labor market back to where it was on the eve of the pandemic."

"Overall broad set of indicators in the labor market show it is relatively tight but not overheated."

"We expect labor market strength to continue."

"More recent readings on inflation have shown easing."

"So far this year, we have not got greater confidence on inflation in order to cut."

"Will need to see more good data to bolster confidence on inflation."

"If the economy remains solid and inflation persists, will keep rates where they are for as long as needed."

"The opposite is also true in terms of rate cuts."

"Policy is well-positioned, will continue to make decisions meeting by meeting."

"We need further confidence, more good inflation readings but won't be specific about how many to start rate cuts."

"We'll also be looking at balance of risks, outlook as well."

"Unexpected weakness in labor market could also call for a response."

"We will be monitoring labor market for signs of weakness, but not seeing that right now."

"We don't see ourselves as having the confidence that would warrant policy loosening at this time."

"I like to look at 3 and 6 month series on payrolls report given differences in establishment and household survey."

"Overall picture is one of strong and gradually cooling labor market."

"People are coming to the view that rates are less likely to go back down to pre-pandemic levels."

"We are making policy with the economy we have and distortions we have."

"The question of whether it's restrictive enough will be answered over time."

"We are prepared to adjust policy as appropriate."

"Housing situation is complicated."

"Ultimately, best thing we can do for housing market is bring inflation down."

"Banking system has been solid, strong, well-capitalized."

"Wages still running above a sustainable path."

"Wages not principle cause of inflation, but needs them to come down for overall inflation to get back to 2%."

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This section below was published at 18:00 GMT to cover the Federal Reserve's policy announcements and the initial market reaction.

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% following the June policy meeting. This decision came in line with the market expectation.

The revised Summary of Economic Projections, the so called dot-plot published alongside the policy statement, showed that 4 of 19 officials saw no rate cuts in 2024, 7 projected a 25 basis points (bps) rate reduction, while 8 marked down a 50 bps cut in the policy rate.

Key takeaways from Fed policy statement and dot plot

"Fed officials' median view of fed funds rate at end-2024 5.1% (prev 4.6%)."

"Fed officials' median view of fed funds rate at end-2025 4.1% (prev 3.9%)."

"Fed officials' median view of fed funds rate at end-2026 3.1% (prev 3.1%)."

"Fed officials' median view of fed funds rate in longer run 2.8% (prev 2.6%)."

"Fed projections imply 25 bps of rate cuts in 2024 from current level, another 100 bps in 2025."

"Fed policymakers see end-2024 PCE inflation at 2.6% versus 2.4% in March projection; core seen at 2.8% versus 2.6%."

"Fed policymakers see 2.1% GDP growth in 2024, unemployment rate at 4%; both unchanged from March."

"Forecasts show 2025 PCE and core PCE inflation at 2.3% versus 2.2% in March."

"There has been modest further progress toward 2% inflation objective."

"Fed does not expect it will be appropriate to reduce policy target range until gaining greater confidence inflation is moving sustainably toward 2%."

"Economy continues to expand at solid pace, job gains remain strong, unemployment rate remains low."

"Inflation has eased over the past year but remains elevated."

"Rrisks to achieving policy goals have moved toward better balance."

"Will continue to reduce holdings of treasuries and mortgage-backed securities."

"Vote in favor of policy was unanimous."

Market reaction to Fed policy announcements

The US Dollar managed to erase a small portion of the heavy losses it suffered following the soft May inflation data earlier in the day. At the time of press, the US Dollar Index was down 000.7% on the day at 104.50.

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This section below was published as a preview of the Federal Reserve's monetary policy announcements at 10:00 GMT.

• The Federal Reserve is widely expected to hold policy rate unchanged.
• Fed Chairman Powell’s remarks could provide important clues about the timing of the policy pivot.
• Markets see a strong chance that the Fed will wait until September to lower the interest rate.

The US Federal Reserve (Fed) will announce monetary policy decisions following the June policy meeting and release the revised Summary of Economic Projections (SEP), the so-called dot plot, on Wednesday. Market participants widely anticipate that the US central bank will leave the policy rate unchanged at 5.25%-5.5% for the seventh consecutive meeting.

The CME FedWatch Tool shows that markets see little to no chance of a rate cut either in June or July. Hence, investors will scrutinize the SEP and comments from Fed Chairman Jerome Powell to try to confirm or deny a policy pivot in September. According to the CME FedWatch Tool, there is a less-than-30% probability of a no change in the Fed interest rate in September.

Hours before the Fed event on Wednesday, the BLS announced that inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3.3% on a yearly basis in May from 3.4% in April. The annual core CPI, which excludes volatile food and energy prices, rose 3.4%, below the 3.6% increase recorded in April and analysts' estimate of 3.5%. On a monthly basis, the CPI was unchanged, while the core CPI was up 0.2% These data revived optimism about a policy pivot in September.

Softer-than-expected CPI data comes after the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, rose 0.2% on a monthly basis in April. This reading came in below the market expectation for an increase of 0.3% and revived optimism about a Fed policy pivot in September. The upbeat employment figures for May, however, caused investors to reassess the US central bank’s policy outlook. After the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls rose 272,000 in May, compared to the market expectation of 185,000, and the annual wage inflation edged higher to 4.1% from 4% in April, the probability of a Fed rate cut in September dropped to 49% from 60% before the release.

The dot plot published in March showed that policymakers were expecting the Fed to lower the policy rate by a total of 75 basis points in 2024, while expecting the annual core PCE inflation to be at 2.6%, up from 2.4% projected in December’s SEP.

Previewing the Fed meeting, “the FOMC is expected to keep the Fed funds target range unchanged at 5.25%-5.50%, with Chair Powell likely providing a similar policy message to May,” TD Securities analysts say and add:

“However, the risk is that the chairman appears optimistic given the recent evolution of the consumer, and if May CPI inflation shows progress. We expect the dot plot to show two cuts as the new median for 2024, and four for 2025.”

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 alongside the SEP on Wednesday, June 12, at 18:00 GMT. This will be followed by Chairman Powell's press conference starting at 18:30 GMT.

In his last public appearance, Chairman Powell said they are committed to bringing inflation back to 2% but acknowledged that the restrictive policy may take longer than expected to reach this goal. "I don't think it's likely that the next move would be a rate hike, it’s more likely that we would hold the policy rate where it is,” he added.

In case the dot plot shows that policymakers are still expecting a total of 75 bps reduction in the policy rate in 2024, this could be seen as a significant dovish surprise and weigh heavily on the US Treasury bond yields and the US Dollar (USD). Nevertheless, this scenario is extremely unlikely at this point.

The market positioning suggests that the USD is facing a two-way risk heading into the event. The CME FedWatch Tool shows that there is a nearly 70% probability of the Fed lowering the policy rate by 50 bps in 2024. If the dot plot points to two 25 bps cuts this year, the initial reaction could weigh on US T-bond yields and force the USD to weaken against its rivals. On the other hand, the USD is likely to outperform its rivals in case policymakers foresee a single rate cut in 2024. Finally, there could be a strong USD rally if the SEP shows that several some policymakers prefer the policy rate to remain unchanged for the rest of the year.

FXStreet analyst Yohay Elam shares a brief preview of possible market reaction to the dot plot. “A median of one cut would boost the US Dollar (USD), while two cuts would buoy stocks and Gold,” Elam says and continues: “Investors will also eye the statement, especially comments on inflation, on the back of fresh CPI data published earlier in the day. The key word is confidence. If the bank is confident that inflation is falling, it would be positive to markets, while reiterating a worried approach on price rises would weigh.”

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

“The Relative Strength Index (RSI) on the daily chart recovered to 50 on Wednesday as EUR/USD surged higher with the immediate reaction to the softer-than-expected US inflation data. Additionally, the pair returned within the ascending regression channel coming from mid-April after closing the first two days of the week below the lower limit of this channel.” 

“The 100-day and the 200-day Simple Moving Averages form a key technical region at 1.0790-1.0800. While this area holds as a support, technical buyers could remain interested. In this scenario, 1.0890-1.0900 (mid-point of the ascending channel, static level) could be seen as the next bullish target before 1.0980 (upper limit of the ascending channel). On the other hand, an extended slide toward 1.0730 (Fibonacci 61.8% retracement of the uptrend that started in mid-April) and 1.0680 (Fibonacci 78.6% retracement) could be seen if the pair falls below 1.0790-1.0800 and confirms this area as resistance.”