The US dollar weakened (DXY fell below 103.50) after the Federal Reserve kept interest rates steady, as expected. While the Fed raised forecasts for economic growth and inflation, unemployment projections went down. Importantly, the Fed's median projection for future interest rates stayed at 4.6%. This news boosted stocks and pushed down bond yields, further weakening the dollar.

The US economy seems strong, with inflation stubbornly high and the job market sending mixed signals. In his press conference, Fed Chair Jerome Powell downplayed recent high inflation readings, saying they don't change the overall progress on inflation control. He emphasized the Fed won't make rash decisions based on just two months of data.

Federal Reserve Policy Summary:

  • Interest Rates on Hold: Fed maintains current rate at 5.25% - 5.50%.
  • Strong Economy & Labor Market: Statement emphasizes positive economic and employment conditions.
  • Data-Driven Decisions: Future policy will be based on incoming economic data.
  • Balancing Act: Focus remains on controlling inflation while promoting economic growth.

Economic & Inflation Projections:

  • 2024 Interest Rate Cuts: Median projection remains at 4.6% despite recent inflation spikes.
  • 2025 Rate Increase: FFR projection for 2025 rises to 3.9% (from 3.6%).
  • Revised GDP Growth: Forecast for 2024 increases to 2.1% (from 1.4%).
  • Stable Unemployment: Rate expected to hold at 4.0%.
  • Inflation Target: PCE target remains at 2.4%, with core PCE reaching 2.6% by year-end.
  • Long-Term Focus: Fed prioritizes long-term economic trends over short-term inflation data.

Source: https://www.fxstreet.com/