Jerome Powell speaks on policy outlook after keeping interest rate steady

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 interest rate decision. 

Fed meeting press conference key quotes

"The economy has made considerable progress toward dual goals."

"Inflation eased substantially over the past year but it's still too high."

"Further progress on inflation is not assured; the path is uncertain."

"Restrictive stance has put downward pressure in inflation, economy."

"Risks to achieving dual goals have moved into better balance over the past year but inflation has shown lack of progress."

"We are highly attentive to inflation risks."

"Private domestic final purchases were as strong as second half of last year."

"That is an important underlying signal for demand."

"Labor market remains relatively tight."

"Nominal wage growth has eased over the past year but labor demand still exceeds supply."

"Inflation data received this year have been higher than expected."

"Longer term inflation expectations remain well anchored though."

"Our policy actions are guided by our goals."

"Monetary policy actions are guided by dual mandate."

"The economic outlook is uncertain."

"We do not expect it will be appropriate to cut rates until have greater confidence on inflation moving toward 2%."

"So far this year, inflation readings have not given us that greater confidence."

"Likely that gaining greater confidence will take longer than previously expected."

"Reducing policy too soon or too much or too late or too little both have risks."

"Policy is well positioned to deal with risks and uncertainties we face."

"We will make decisions meeting by meeting."

"Slowing pace of QT does not mean our balance sheet will shrink less than it would otherwise."

"Slowing the pace of runoff will ensure a smooth transition for money markets."

"The decision to slow runoff will reduce the possibility of money market stress."

"I do think policy is restrictive and is weighing on demand."

"You can see that with the labor market."

"Saw evidence of that today in the JOLTS report."

"Quits and hiring rates have normalized."

"We believe over time policy is sufficiently restrictive to bring inflation back down to 2%."

"The data will show if that's so."

"Unlikely that next policy rate move would be a hike."

"Policy focus is on how long to keep policy restrictive."

"To hike, we'd need to see evidence policy is not sufficiently restrictive -- that's not what we see."

"Our decisions depend on incoming data."

"We think policy is well positioned to address different paths the economy might take."

"If inflation proves more persistent and labor market remains strong, then it could be appropriate to hold off on rate cuts."

"But there are other paths which would point to rate cuts."

"That would be if we gain greater confidence and unexpected weakening in labor market."

"Data will have to answer question of if this is peak rate."

"To reduce rates, we want to be confident inflation is moving down."

"Incoming inflation data will be at the very heart of that decision."

"Not obvious connection between easing in financial conditions and inflation."

"Wouldn't rule out that we could still have strong growth or labor market and inflation continue to fall."

"We will probably have to see wage growth ease to more sustainable levels to reach inflation goal."

"I don't know how long it will take before we can cut rates."

"We do need to take a signal from three worse-than-expected inflation readings."

"Will take us longer to get ourselves sufficiently confident to change policy rate."

"Since December, goods and housing inflation has been higher than expected."

"My expectation is over the course of this year, inflation will move back down but my confidence in that is lower than it was before."

"Looks like substantial lags in when lower market rents will turn up in the data."

"Active tool of monetary policy is interest rates."

"Plan to slow balance sheet runoff is aimed at making it smooth, avoiding market turmoil."

"Balance sheet slowdown now is to ensure a smooth process and not market turmoil like last time."

"Economy has been very hard for forecasters to predict."

"There are paths to not cutting, and paths to cutting -- it will depend on the data."

"As inflation has come down to below 3%, the Fed's employment goal comes back into focus."

"I don't know if inflation will fall enough, or won't fall enough, to merit rate cuts."

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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 April 30 - May 1 meeting. This decision came in line with the market expectation.

In its policy statement, the Fed said that there has recently been a lack of further progress toward the 2% inflation target. Regarding the quantitative tightening strategy, the Fed noted that they will slow the decline of the balance sheet by cutting the Treasury redemption cap to $25 billion per month from $60 billion starting June 1.

Key takeaways from Fed policy statement

"Fed maintains mortgage-backed securities redemption cap at $35 billion per month, will reinvest excess MBS principal payments into Treasuries."

"Risks to achieving employment and inflation goals have moved toward better balance over the past year."

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

"Fed vote in favor of policy was unanimous."

Market reaction to Fed policy announcements

The US Dollar came under modest bearish pressure with the immediate reaction. At the time of press, the US Dollar Index was down 0.2% on the day at 106.08.

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

• The Federal Reserve is widely anticipated to keep interest rates 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 April 30 - May 1 policy meeting on Wednesday. Market participants widely anticipate that the US central bank will leave the policy rate unchanged at 5.25%-5.5% for the sixth consecutive meeting.

The CME FedWatch Tool shows that markets see little to no chance of a rate cut in June. Hence, investors will scrutinize the changes in the statement language and comments from Fed Chairman Jerome Powell to figure out the timing of the policy pivot. According to the FedWatch Tool, there is a 30% and a 60% probability of the Fed lowering the policy rate in July or in September, respectively.

At the end of 2023, markets were expecting the Fed to cut the policy rate as early as March. Strong employment and growth figures in the first quarter of 2024, accompanied by data showing a lack of progress in disinflation, caused investors to shift their forecasts toward a policy pivot in the second half of the year.

Macroeconomic data releases since the December policy meeting showed that consumer and producer inflation started to edge higher in the first couple of months of the year. Additionally, the labor market remained relatively healthy while activity-related data, such as the forward-looking PMI surveys, suggested that the US is very likely to avoid a recession.

Previewing the Federal Open Market Committee (FOMC) meeting, “the FOMC is widely expected to keep the Fed funds target range unchanged at 5.25%-5.50% next week, with Chair Powell likely sounding more cautious than usual, with a hawkish bent, amid firmer than expected inflation data,” said TD Securities analysts. 

"Higher for longer will likely remain the name of the game for now. We also expect the Fed to announce a preliminary plan to taper QT starting in June”, 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 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 noted that the performance of the US economy has been quite strong and said that the restrictive policy needs more time to work. Regarding the strong inflation readings, “the Fed took a cautious approach to not overreacting to declines last year; recent data have not given greater confidence,” he said.

In case Powell confirms that there won’t be a rate cut in June, the positioning suggests that the impact on the US Dollar (USD) is unlikely to last, with the CME FedWatch Tool showing markets already pricing in a nearly 90% probability of a policy hold. Following the March policy meeting, Powell argued that seasonal factors could be behind strong inflation figures seen at the beginning of the year, adding January and February together have not changed the overall story. If he adopts a more cautious tone regarding the inflation outlook and suggests they are still far from considering interest rate cuts, the initial reaction could help the USD gather strength against its rivals.

On the other hand, the USD could lose interest if Powell acknowledges the negative impact of tight policy on economic activity by signaling the disappointing 1.6% annualized Gross Domestic Product (GDP) growth recorded in the first quarter of the year. If Powell alludes to September as the possible timing of the policy pivot, the US Treasury bond yields could turn south and drag the USD lower. 

Commenting on the Fed’s policy decisions’ potential impact on the USD’s valuation, “this week’s FOMC meeting should see a hawkish hold. In addition, the ongoing backdrop of persistent inflation and robust growth in the US should keep upward pressure on US yields, which in turn would be supportive of the Dollar,” said BBH analysts. “We believe that while market easing expectations have adjusted violently this month, there is still room to go. When the market finally capitulates on the Fed, the dollar should gain further”, they added.

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 stays slightly below 50 despite the recovery seen in the last two weeks, suggesting that EUR/USD is yet to signal a bullish reversal. On the upside, the 200-day Simple Moving Average (SMA) aligns as key resistance at 1.0800. If the pair rises above that level and starts using it as support, it could target 1.0840 - 1.0860 (100-day SMA, Fibonacci 38.2% retracement of the October-January uptrend) and 1.0950 (Fibonacci 23.6% retracement).”

“Strong support is located at 1.0600 (Fibonacci 78.6% retracement) before 1.0500 (psychological level, static level) and 1.0450 (beginning point of the uptrend).”