|

Federal Reserve officials lean into cautious stance as policymakers wait for further signs of easing

  • Federal Reserve officials await more "good inflation" data before cutting rates.
  • Jerome Powell reiterates data-dependent approach, says they will make decisions meeting by meeting.
  • Federal Reserve policymakers are divided over the timing of the policy pivot.

Federal Reserve (Fed) left the policy rate unchanged at 5.25%-5.5% following the June policy meeting, as expected. The revised Summary of Economic Projections (SEP), the so-called dot plot, showed that policymakers were divided over the near-term rate outlook. Four of 19 officials saw no rate cuts in 2024, seven projected a 25 basis points (bps) rate reduction, while eight marked down a 50 bps cut in the policy rate.

Fed policymakers speak on inflation and rate outlook

Fed Chairman Jerome Powell refrained from hinting at the timing of the rate reduction in the post-meeting press conference. "We need further confidence, more good inflation readings but won't be specific about how many to start rate cuts," Powell explained.

Following the Fed event and May inflation data, the probability of the Fed leaving the policy rate unchanged in September declined toward 30% from 50%, according to the CME FedWatch Tool. 

With the Fed's blackout period coming to an end after the June meeting, investors will pay close attention to comments from policymakers in the near term. 

Cleveland Fed President Loretta Mester said that she would like to see a "longer run of good-looking inflation data," and Minneapolis Fed President Neel Kashkari stated over the weekend that it would be a “reasonable prediction” that the Fed will wait until December to cut interest rates, adding that the central bank is in a very good position to get more data before making any decisions. Meanwhile, President of the Philadelphia Fed, Patrick Harker, leaned into a cautious stance on Monday, noting that the Fed may need to keep rates where they are for longer than markets currently hope.

On Tuesday, New York Fed President John Williams adopted a neutral voice, telling Fox Business that he expects interest rates to come down gradually as inflation eases. 

Boston Fed President Susan Collins followed closely on Fed Williams' heels, noting that despite significant progress on inflation, price growth remains stubbornly above the Fed's 2% inflation target. Fed Collins reiterated the need to avoid overreacting to recent inflation data, stating that it is still too soon to say whether or not inflation is truly on its way back to 2%.

Fed Board of Governors member Adriana Kugler followed up on Tuesday, noting that inflation progress remains gradual, but highlighted that the US central bank expects only a slight softening of the US labor market as interest rates take small chunks out of inflation.

Newest Fed member, Alberto Musalem, the fresh President of the St. Louis Fed, joined the chorus of cautious Fed officials on Tuesday, highlighting his willingness to tighten policy further if inflation figures were to become stuck above the Fed's 2% target. St. Louis Fed President Musalem also cautioned that it could take months or even entire quarters before Fed policy finishes up the battle with above-target inflation.

Following her colleagues' line, President of the Dallas Federal Reserve Bank Lorie Logan remarked on Tuesday that the recent data indicating a slowdown in inflation is "encouraging," but emphasized that the Fed must remain cautious and patient regarding interest-rate policy.

Federal Reserve Bank of Chicago President Austan Goolsbee rounded out Tuesday's Fed official appearances, noting that the lastest update on Consumer Price Index (CPI) inflation was "excellent", and reiterated that he hopes to see more of the same in future inflation prints.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

FXStreet Team

Composed of a group of economic journalists and FX experts, the FXStreet content team produces and oversees all content published on FXStreet. It provides a purely journalistic approach to the Forex market.

More from FXStreet Team
Share:

Editor's Picks

GBP/USD tumbles to three-day lows around 1.3420

GBP/USD comes under extra selling pressure and revisits the area of multi-day lows near 1.3420 in quite a bearish start to the week. Cable’s decline comes amid the firmer Greenback as investors continue to assess developments in the US-Iran conflict. Moving forward, attention will turn to the UK employment report on Tuesday.


EUR/USD remains offered near 1.1400

EUR/USD trades on the back foot for the third day in a row and approaches the key 1.1400 threshold, or multi-day troughs, on Monday. The pair’s pullback comes amid persistent uncertainty surrounding the Middle East crisis and a solid performance of the US Dollar. Later this week, attention will turn to the ECB’s interest rate decision.

Gold puts $4,000 to the test

Gold reverses Friday’s uptick, gyrating around the key $4,000 mark per troy ounce at the beginning of the week. Escalating military action in the Middle East provides some support to the safe-haven metal, although expectations of higher US interest rates bolster the US Dollar and keeps its under the microscope.

Ethereum remains fragile underneath the surface despite outperformance

Ethereum's outperformance over the past week shows it's gaining relative strength against other top cryptocurrencies, but under the surface, key metrics indicate its rise remains fragile. Between last week and Wednesday, ETH recorded double-digit gains, outperforming fellow crypto majors Bitcoin, XRP, and Solana, before the broader market began to correct on Thursday.

Ripple Price: XRP bears retail control despite increasing retail demand
Ripple (XRP) faces sustained selling pressure as bears maintain control on Monday. The remittance token has struggled to break above the $1.10 resistance since last Thursday, as risk sentiment weighs. Demand for XRP derivatives has gradually increased since last week, with the perpetual futures Open Interest (OI) averaging 2.4 billion XRP on Monday, up from 2.13 billion XRP the previous day.
US Dollar mid-year outlook: Exceptional currency, exceptional risks?
The US Dollar enters the second half of 2026 in a markedly different position from a year ago. The King currency has recovered, reflecting persistent US inflation, changing expectations for Fed policy, geopolitical tensions and renewed demand for defensive assets.