FOMC Recap: Less Dovish Powell Pushes Dollar Back Toward 10-Month Highs

The FOMC’s range of interest rate forecasts narrowed, showing that the committee has converged toward a more gradual, shallower rate cut path, driving yields and the dollar higher.

FOMC Recap Key Points

• The Federal Reserve’s FOMC kept interest rates unchanged in the 3.50-3.75% range, as expected, in an 11-1 vote.
• The dot plot shows the FOMC has converged toward a more gradual, shallower rate cut path, rather than fundamentally changing its central view.
• The US Dollar Index (DXY) has caught a bid to trade back near the 100.00 level as traders push back their expectations for interest rate cuts in the next quarter or two.

FOMC Interest Rate Decision

The Federal Reserve’s FOMC kept interest rates unchanged in the 3.50-3.75% range, as expected.

Trump appointee Stephen Miran was the lone dissent in the 11-1 vote.

There were no other changes to monetary policy at today’s meeting.

FOMC Monetary Policy Statement

In its accompanying monetary policy statement, the FOMC made no substantive changes. It updated its statement on the unemployment rate to read that it has “been little changed in recent months” and nodded to “uncertain” economic implications from developments in the Middle East.

Source: FOMC, StoneX

Summary of Economic Projections and Dot Plot

The central bank also released its updated quarterly economic forecasts. The biggest change was on the progress (or lack thereof) toward its 2% inflation forecast. As the chart below shows, the median FOMC member now projects inflation at 2.7% this year, with a token increase to 2.2% in 2027. The central bank also updated its forecast for real GDP growth a tick to 2.4% while leaving the unemployment rate projection unchanged at 4.4% this year and up a tick to 4.3% next year:

Source: FOMC, StoneX

As for the highly-anticipated “dot plot” of interest rate forecasts, there were no changes to the median expectation of one interest rate cut in 2026 and one in 2027, though the most dovish members did come back toward the consensus. The lone dot near 2.0% back in December disappeared, and the dots that had been sitting around 2.50%-2.75% moved up closer to 3.00%-3.125%. On balance, the range of interest rate forecasts narrowed, showing that the committee has converged toward a more gradual, shallower rate cut path, rather than fundamentally changing its central view.

FOMC Chairman Jerome Powell’s Press Conference

Jerome Powell’s press conference is winding down as we go to press, and on balance, he has come off as moderately less dovish in his penultimate meeting as Chairman.

Highlights from his comments follow [emphasis mine]:

• WE WILL REMAIN ATTENTIVE TO RISKS ON BOTH SIDES OF THE MANDATE
• NEAR-TERM INFLATION EXPECTATIONS HAVE BEEN UP IN RECENT WEEKS DUE TO THE MIDDLE EAST
• LAST YEAR’S RATE CUTS BRING TO PLAUSIBLE ESTIMATE OF NEUTRAL
• NEAR-TERM HIGHER ENERGY PRICES WILL PUSH UP OVERALL INFLATION
• PAST RATE CUTS SHOULD HELP STABILIZE THE LABOR MARKET
• WHETHER WE LOOK THROUGH ENERGY INFLATION DOESN’T ARISE UNTIL WE CHECK THE BOX ON GOODS INFLATION
• MEDIAN OF RATE-PATH PROJECTIONS DIDN’T CHANGE, BUT THERE WAS A MEANINGFUL MOVE OF PEOPLE TO FEWER CUTS
• THE FORECAST IS THAT WE WILL BE MAKING PROGRESS ON INFLATION, NOT AS MUCH AS HOPED
• IF I DON’T SEE INFLATION PROGRESS, YOU WON’T SEE THE RATE CUT
• THERE IS NO CONVICTION ON WHAT PEOPLE ARE WRITING DOWN IN PROJECTIONS
• IF WE WERE EVER GOING TO SKIP AN SEP, THIS WOULD BE A GOOD ONE
• THERE IS A VERY LOW BREAKEVEN RATE FOR JOBS
• THE NET OF THE OIL SHOCK WILL STILL BE SOME DOWNWARD PRESSURE ON SPENDING, EMPLOYMENT, AND UPWARD PRESSURE ON INFLATION
• I WOULD NOT SAY EMPLOYMENT IS MORE AT RISK THAN INFLATION
• IF NO FED CHAIR IS CONFIRMED BY THE END OF MY TERM, I WOULD SERVE AS CHAIR PRO TEM
• I HAVE NO INTENTION OF LEAVING THE FED BOARD UNTIL THE DOJ PROBE IS OVER
• A ZERO EMPLOYMENT GROWTH EQUILIBRIUM IS BALANCED, BUT IT HAS THE FEEL OF A DOWNSIDE RISK
• THIS ENERGY SUPPLY SHOCK IS A ONE-TIME THING
• THE POSSIBILITY THAT THE NEXT MOVE MIGHT BE A HIKE DID COME UP
• WE’RE TRYING TO MANAGE OUR WAY THROUGH THE TENSION BETWEEN TWO GOALS, BUT THIS IS NOT STAGFLATION
• IN THE SHORT TERM, BUILDING DATA CENTERS PUSHES INFLATION UP AT THE MARGIN, IT ALSO PROBABLY RAISES THE NEUTRAL RATE.

Overall, Powell was relatively balanced, emphasizing the uncertainty around economic forecasts and timing (even direction) of the next change to interest rates. The comments about remaining on the Federal Reserve until the DOJ investigation concludes were a notable new development, and at the margin, reduce the likelihood of sharp interest rate cuts under Chairman Kevin Warsh, assuming he’s confirmed.

US Dollar Technical Analysis: DXY Daily Chart

Source: Tradingview, StoneX

Turning to markets, traders are pushing back their expectations for immediate interest rate cuts from the Fed, with the 2-year Treasury yield rising 8bps to test their 7-month high. The US Dollar Index (DXY) has accordingly caught a bid to trade back near the 100.00 level, benefitting both from the fading odds of a interest rate cut in the next two quarters and a safe haven bid as the conflict in the Middle East takes a turn for the worse.

Moving forward, the 10-month high at 100.50 is the key level to watch, with a break above there opening the door for another leg up above 101.00 next.

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