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SNAP ANALYSIS: Fed leaves rates unchanged, as expected; offers little clues on future policy path

The Fed's decision to keep rates steady at 3.50-3.75% aligns with market expectations, yet the absence of clear guidance on future policy creates uncertainty.

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SNAP ANALYSIS: Fed leaves rates unchanged, as expected; offers little clues on future policy path

FOMC STATEMENT: Rates kept unchanged at 3.50-3.75%, as expected; vote split 10-2 (Miran and Waller called for 25bps rate cut)

US Fed Williams Speech 3.75% vs. Exp. 3.75% (Prev. 3.75%)

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  • The Fed left rates unchanged at 3.50-3.75%, as expected, in a 10-2 vote split, with Governors Miran and Waller calling for a 25bps reduction (Miran had previously voted for a 50bps cut in December, atlhough in recent remarks said the need to dissent with a 50bps cut has become somewhat less). The January statement revised the economic assessment by replacing “economic activity has been expanding at a moderate pace” with “expanding at a solid pace”, “job gains have slowed this year” with “job gains have remained low”, and “the unemployment rate has edged up” with it having “shown some signs of stabilisation”; “inflation has moved up since earlier in the year and remains somewhat elevated” is simplified to “inflation remains somewhat elevated”.
  • In its risk characterisation, December’s addition that the Committee “judges that downside risks to employment rose in recent months” is removed, leaving only that it is attentive to risks to both sides of the mandate.
  • Balance-sheet guidance states that “reserve balances have declined to ample levels and [the Committee] will initiate purchases of shorter-term Treasury securities” is omitted entirely.
  • The voting members include a new voting composition, and dissents: December’s dissent split between one member favouring a 0.50ppts cut (Miran) and two preferring no change is replaced in January by two dissenters preferring a 0.25ppts cut (Miran, Waller).
  • The language of the statement tilts a little more positive on the economy and jobs, and broadly unchanged on inflation. Heading into the announcement, traders were attentive for any remarks about the future policy path; however, the statement doesn't offer any immediate clues. Markets were little changed in wake of the announcement. Traders will look to Chair Powell's press conference for potential signals, and additionally will also be attentive to the possibility that the Trump administration is getting closer to announcing its next Fed Chair soon.
Context

The language revision hints at a somewhat improved economic outlook, but the lack of specific signals means traders will be focused on Chair Powell’s upcoming comments for further direction, particularly regarding any shifts in rate expectations. This cautious tone suggests a wait-and-see approach in the markets, which may influence risk sentiment across equities and Forex.

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