Fed's Powell to 'kick the can down the road' and hold rates until tariff impact clear
The US economy continues to show no signs of letting up. Businesses appear largely resilient to the uncertainty created by Trump’s tariffs, at least according to this month’s composite PMI from S&P, which jumped to its highest level since December. We’re also not seeing signs of mass layoffs in the labour market, with last week’s jobless claims figures dropping to the lowest levels since April.
It's somewhat of a surprise that the recent strength of the US economy has not yet been reflected in a stronger dollar, but this may merely have been a reflection of lingering jitters ahead of this Friday’s tariffs deadline.
Focus now shifts to Wednesday's FOMC decision.
While we expect no change in rates, we could see a couple of rare dissenting votes in favour of an immediate cut.
Chair Powell is, however, likely to kick the can down the road, stressing again that more data on the economic implications of the tariffs will be required, and that the Fed will have greater clarity after the summer.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
