Fed Statement: Rates kept steady; Bullard dissented; 8 officials see cuts this year

The Federal Reserve delivered a dovish statement that saw bonds rally to session high and the dollar tumbled.  The FOMC statement removed the reference about being patient on rates and highlighted uncertainties to outlook have increased.  The dot plots show that eight policy makers expect lower rates in 2019, eight see rates on hold and one is still calling for a rate increase.  Of the 8 members who are calling for rate cuts this year, seven see 50 basis points in cuts.  With downgrades to the 2019 and 2020 PCE inflation forecasts, the Fed’s mandate will see them deliver rate cuts at the next meeting.

Policy was too tight, the real rate is lower and July should see 50 basis points in rate cuts regardless of what we see come out of trade negotiations between the Trump and Xi.

Powell’s press conference

Powell’s early comments provided some optimism to the economy after he said, “so far this year the economy has performed reasonably well.  A key comment was , “The case for somewhat more accommodative policy has strengthened.”  Regarding consumption he stated it has bounced back and is running at a solid pace.  He added that the FOMC wants to wait and see how risks weigh on the outlook and they will use their tools to sustain this long expansion.  Powell’s presser delivered mixed signals on the economy and when to expect rate cuts.  Inflation is the reason the case of accommodation has strengthened and that is why markets maintain the pricing of rate cuts. With the rest of the world suffering from deflationary pressures, Powell noted the Fed is looking at how to make 2% inflation goal more credible.  He added that a 4% inflation goal would not be a practical alternative.


Oil prices firmed up following the Fed’s rate decision as broad dollar weakness supported commodities.  With financial markets expecting significant easing from both the ECB and Fed, global growth concerns will have a safety net that should translate to improving demand.


While the FOMC statement was dovish, Powell’s presser seemed to rely more on data-dependency in seeing a rate cut.  Gold traded sharply higher on FOMC statement but struggled to break out higher following Powell’s mixed comments.


FOMC Statement

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya