The Fed is ready to keep interest rates high for a longer period Yesterday, the Fed left interest rates unchanged at 5.25-5.50% as expected, but amended the statement to acknowledge the lack of further progress towards the inflation target of 2%, and this is considered a positive point for the dollar, but after referring to the reduction of the QT period for Treasury bonds from 60 billion dollars to 25 billion dollars, the forecast was about 30 billion dollars, and this is considered a negative point for the dollar and the positive turned into a dovish surprise.
Turning to the press conference of Fed Chairman Powell, we did not get any militant surprise, on the contrary, he repeatedly opposed raising interest rates adding that they need to see convincing evidence that their policy position is not restrictive enough to achieve this.
Therefore, compared to the forecasts before the event and taking into account the larger reduction in the QT period and the retreat from raising interest rates, we can say that it was rather pessimistic and the initial market reaction showed this ,but the most important question is Does yesterday's meeting change the overall picture The market prices hardly changed at all, and we did not see sharp declines for the dollar, but they were all limited declines, even gold prices began to decline significantly today, as the markets are still fully pricing in an interest rate cut only once this year after it was three times at the last Fed meeting.
The data remains the only thing we should really care about, as it will guide market expectations.
If we continue to get hot readings for inflation and rises again without a decline for jobs, then no matter what the Fed says the market will still start pricing in an interest rate hike.
Among the data to watch will be the US NFP report and the ISM services PMI tomorrow.
