- The minutes of the March policy meeting will be released by the Fed on Wednesday.
- Analysts will closely examine the discussions led by Jerome Powell and his colleagues regarding the policy shift.
- Market sentiment indicates nearly a 50% likelihood of the Fed maintaining its policy stance in June.
The Federal Reserve (Fed) is set to release the minutes of its March policy meeting on Wednesday. Investors will closely monitor discussions regarding the inflation forecast and the potential timing of a policy adjustment.
Fed faces a tough policy decision in June
Following the anticipated March 19-20 policy meeting, the Federal Reserve opted to maintain its current monetary policy settings, in line with expectations. The updated Summary of Economic Projections, commonly referred to as the dot plot, indicated that policymakers still foresaw a cumulative reduction of 75 basis points (bps) in the policy rate throughout 2024.
During the post-meeting press conference, Federal Reserve Chairman Jerome Powell reiterated the necessity for “greater confidence” in inflation moving towards the 2% target sustainably before considering interest rate cuts. Despite market anticipation of a potential policy shift in June, recent hawkish remarks from Fed officials post-March meeting, coupled with robust labor market data, prompted investors to reconsider the rate outlook.
Atlanta Fed President Raphael Bostic expressed his expectation of a single policy rate cut this year, likely in the last quarter. Conversely, Dallas Fed President Lorie Logan cautioned against premature rate cuts, citing inflationary risks. Minneapolis Fed President Neel Kashkari mentioned penciling in two rate cuts for the year but suggested a reevaluation if inflation remains stable.
Meanwhile, the US Bureau of Labor Statistics (BLS) reported a substantial increase in Nonfarm Payrolls by 303,000 in March, surpassing market expectations and underscoring the enduring strength of the labor market.
In response to the hawkish commentary from the Fed and the robust March jobs report, the likelihood of a rate cut in June decreased to around 50% from over 60% earlier in the week, according to the CME FedWatch Tool.
Previewing the March Federal Open Market Committee (FOMC) Minutes, analysts at TD Securities noted that the FOMC continued to exercise patience at the meeting, seeking further evidence to bolster confidence in inflation moderation. Despite upgrading most macro projections for 2024, Fed officials maintained their median projection of three rate cuts for the year. The forthcoming discussions on short-term policy outlook and Quantitative Tightening (QT) tapering are expected to draw significant attention.
When will FOMC Minutes be released and how could it affect the US Dollar?
The Federal Reserve is scheduled to release the minutes of the March policy meeting at 18:00 GMT on Wednesday. While investors are expected to closely monitor this release, its impact on the valuation of the USD might be somewhat limited. This is because earlier in the day, the Bureau of Labor Statistics (BLS) will publish the Consumer Price Index (CPI) data for March, which is likely to exert a more substantial influence on the market’s assessment of the Fed’s policy outlook.
However, if the FOMC Minutes reveal that certain policymakers maintain an optimistic view regarding the inflation outlook and continue to advocate for a rate cut in June despite stronger-than-expected CPI data for January and February, the USD could experience some downward pressure. Conversely, if the publication indicates that officials are inclined to postpone a rate cut as long as labor market conditions remain robust, the USD is expected to strengthen against its counterparts in the immediate aftermath.
Eren Sengezer, European Session Lead Analyst, offers a brief technical analysis for the USD Index:
“The USD Index (DXY) finds key support at the 200-day Simple Moving Average (SMA) around 103.80. A breach below this level, with subsequent resistance forming around it, could lead to a test of the next support at 103.40 (100-day SMA), followed by 102.35 (March 8 low). On the upside, the Fibonacci 61.8% retracement level of the October-December downtrend serves as initial resistance at 104.70, followed by 105.00 (static level) and 105.80 (Fibonacci 78.6% retracement).”
