|

Fed recap: Holding steady, but the debate is getting louder

The Federal Reserve (Fed) left its policy rate unchanged at 3.50% to 3.75%, a widely expected move, but the underlying message was far from straightforward.

On the surface, the statement kept a balanced tone, pointing to solid economic activity, a resilient consumer, and a labour market that is cooling but not deteriorating sharply. At the same time, inflation was described as “elevated”, a subtle but meaningful upgrade, with rising energy prices once again in focus.

But the real story sat beneath the headlines. The decision saw an unusually large split, with policymakers divided not only on the rate outlook but also on how to frame guidance. That internal tension became even clearer during the press conference.

When Jerome Powell spoke to reporters, he aimed for a delicate balance between noting that inflation risks still exist and wanting to keep all options open on policy. Energy prices featured prominently, with Powell warning that the recent surge has not yet peaked and will continue to push up inflation in the near term. He also flagged rising short-term inflation expectations and admitted that the risk of higher core inflation is real.

That said, this was not a central bank preparing to tighten: Powell made it clear that no one on the Committee is currently calling for a rate hike, and emphasised that policy is already sitting at the high end of neutral, if not slightly restrictive. Instead, the focus was on timing, with the Fed wanting to see clearer evidence that the effects of energy and tariffs are fading before even considering rate cuts.

The message on policy direction was deliberately two-sided after Powell stressed that the Fed is in a position to move in either direction if needed, but equally underscored that there is no preset course. What happens over the next 30 to 60 days, particularly around energy prices and inflation dynamics, could prove decisive.

All in all

This was a Fed firmly in wait-and-see mode but with a clear signal that the bar for easing has risen. Inflation risks, especially those linked to energy and expectations, remain front and centre, while the labour market is softening only gradually.

For markets, that means rate cuts are likely to stay pushed further out, even as the Fed keeps the door open, at least in theory, to move in either direction.

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

More from Pablo Piovano
Share:

Editor's Picks

AUD/USD hangs below mid-0.7100s amid bullish USD, ahead of FOMC meeting

AUD/USD remains on the back foot during the Asian session on Tuesday, close to an over three-week low touched the previous day. US bond yields hold near multi-year highs ahead of the FOMC meeting and oil-driven inflation risks, supporting the US Dollar and weighing on the currency pair. However, rising RBA rate-hike bets could limit deeper losses for the Aussie.


USD/JPY sticks to gains near mid-154.00s as traders await Fed/BoJ meetings

USD/JPY attracts some buyers for the second straight day on Tuesday, though it remains below a one-week high touched the previous day as traders await the FOMC and BoJ meetings this week. Meanwhile, Fed rate-hike bets and oil-driven inflation risks keep US bond yields near multi-year highs, supporting the US Dollar and the currency pair. That said, a more hawkish repricing of the BoJ normalization path might continue to underpin the Japanese Yen and cap spot prices.

Gold seems vulnerable below $4,300 as traders await FOMC meeting

Gold struggles below $4,300 during the Asian session on Tuesday and remains vulnerable near a one-month low, touched the previous day. Fed rate-hike expectations and inflation concerns remain supportive of elevated US bond yields, underpinning the US Dollar and weighing on the non-yielding bullion. Bears, however, might wait for the outcome of a two-day FOMC meeting on Wednesday before placing fresh bets.

Bitcoin pushes past $79K as markets anticipate Fed meeting, Strategy stays put

Bitcoin rose above $79,000 on Monday as the broader crypto market enters a closely watched week for policymakers. According to QCP analysts, markets have largely priced in a 25-basis-point Federal Reserve rate increase after the release of August inflation data last week. The focus has shifted toward how policymakers communicate their outlook for future rate moves.

Eight reasons why the Fed should raise rates
The FOMC meeting on September 15–16 is expected to mark a turning point with the Fed’s first rate hike since May 2023. While there may have been economic reasons to hold off and maintain the status quo until now (some negative signals on the employment front and some encouraging ones on the inflation front), the conditions for a necessary recalibration now appear to be in place.
Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight
The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.