The Federal Open Market Committee (FOMC) maintained the target range for the federal funds rate at 5.25-5.50% as expected in its last announcement.
Their official statement acknowledged this “There has been modest additional progress towards the committee's 2% inflation target.” In recent months, which has been more optimistic compared to previous rhetoric “No further progress on inflation.”
Link to the June FOMC statement
In the FOMC's latest economic outlook, the Fed maintained its average growth forecast while raising inflation estimates for this year and next.
What caught everyone's attention was the updated interest rate forecast, which reduced the potential rate cuts from three to just one this year.
In particular, 11 out of 19 policymakers expect no more than one rate cut in 2024, while four officials actually expect no easing steps at all. However, the Fed's charts also revealed more interest rate cuts in 2025, from three to four cuts.
Link to FOMC economic forecasts
During the press conference, Fed Chairman Powell highlighted the US CPI reading earlier, noting that “We view today's report as progress and, you know, as a confidence builder. But we don't see ourselves as having the confidence to start easing policy at this time.”
CME Group's FedWatch tool now forecasts a 63% probability of a rate cut in September, down from a previous forecast of 70% earlier in the day.
Market reactions
US dollar against major currencies: 5 minutes
Overlay of the US dollar against major currencies Chart by TradingView
The US dollar was gradually rising after falling following the CPI in the hours leading up to the FOMC statement.
The actual announcement was seen as mostly hawkish overall, leading to a brief US dollar rally likely due to a scaling back of easing moves planned for the rest of the year.
A bit of sideways price action ensued as traders braced for Fed Chairman Powell's press conference, which then triggered a prolonged rally for the US currency due to the lack of a dovish comment.
The dollar made its biggest advance against the Japanese yen, followed by the Australian and New Zealand dollars, as higher-yielding currencies are likely to succumb to risk-off flows.