Fed Holds Rates Steady Amid Economic Uncertainty

The Federal Reserve's decision to keep rates steady at 4.25-4.50% met market expectations, but attention now turns to its future guidance. With rising concerns over stagflation and economic uncertainty, the focus is on how the Fed will navigate these challenges and what it means for the dollar and market outlook.

Fed holds rates steady, with focus on future economic guidance.

Economic Projections and Risks

The Fed’s 2025-2026 projections remained unchanged, suggesting two 25-basis-point cuts in 2025. However, markets now see a 60% chance of a third cut. Key revisions included a lower 2025 GDP forecast (1.7% from 2.1%) and a higher core PCE forecast (2.8% from 2.5%), signaling stagflation concerns.

What to Expect from Chair Powell's Press Conference

The market’s next big focus will be on Chair Jerome Powell’s press conference. Uncertainty is expected to dominate the conversation, and Powell may stress the need for caution, urging the market to interpret the forecasts with humility. With trade, immigration, fiscal, and regulatory policies still uncertain, he may highlight that more clarity is needed before making any significant policy shifts.

If Powell suggests that the Fed is waiting for more clarity before adopting a more dovish stance, it could lead to a weaker US dollar. However, if he reassures the market that the economy is slowing but not alarmingly so, and that inflation will gradually return to target, the dollar may remain supported.

Conclusion: High Uncertainty Ahead

As the market processes the Fed's decisions, uncertainty remains high, with concerns over stagflation and a cautious Fed stance. The outlook for both the US economy and the dollar remains fluid.