Fed Poised to Pause Interest Rate Cuts as Trump Policies Influence Economic Outlook

The Federal Reserve is widely expected to hold its current monetary policy stance following the January meeting.

Fed Chairman Powell’s press conference will be crucial in providing insights into the future direction of interest rates.

The US Dollar could weaken if the Fed maintains the possibility of a rate cut in March.

The United States (US) Federal Reserve (Fed) will announce its monetary policy decisions following the conclusion of its first policy meeting of the year on Wednesday. Market participants widely anticipate that the US central bank will maintain its current interest rate target range of 4.25%-4.5%, following the 25 basis point (bps) rate cut implemented in December.

The CME FedWatch Tool indicates that investors see virtually no chance of a rate cut in January, while pricing in a 33% probability of a 25 bps reduction in March. Therefore, the language used in the Fed’s statement and comments from Fed Chairman Jerome Powell will likely be the primary drivers of the US Dollar’s (USD) valuation, rather than the interest rate decision itself.

The FOMC is widely expected to maintain its policy stance unchanged at 4.25%-4.50% next week, with Chair Powell expected to communicate what’s likely to be a cautious approach to policymaking in the near term, while still acknowledging a potential for further easing. The decisions made by Fed officials, while still highly data-dependent, are increasingly influenced by the policies of the Trump administration