Fed Minutes to offer clues on slower rate cuts outlook in 2025

• The Minutes of the Fed's January 28-29 policy meeting will be published on Wednesday.
• Details surrounding the discussions on the decision to keep policy settings unchanged will be scrutinized by investors.
• Markets see virtually no chance of a 25 bps Fed rate cut in March. 

The Minutes of the United States (US) Federal Reserve's (Fed) January 28-29 monetary policy meeting will be published on Wednesday at 19:00 GMT. Policymakers decided to maintain the policy rate at the range of 4.25%-4.5% at the first meeting of 2025. However, the central bank removed earlier language suggesting inflation had "made progress" toward its 2% target, instead stating that the pace of price increases "remains elevated."

Jerome Powell and co decided to hold policy settings unchanged after January meeting

The Federal Open Market Committee (FOMC) voted unanimously to keep the policy rate unchanged. The statement showed that officials expressed confidence that progress in reducing inflation will likely resume later this year but emphasized the need to pause and await further data to confirm this outlook.

In the post-meeting press conference, Fed Chairman Jerome Powell reiterated that they don't need to be in a hurry to make any adjustments to the policy. 

Commenting on the policy outlook earlier in the week, Philadelphia Fed President Patrick Harker said that the current economy argues for a steady policy for now. Similarly, Atlanta Fed President Raphael Bostic noted that the need for patience suggests that the next rate cut could happen later to give more time for information.

When will FOMC Minutes be released and how could it affect the US Dollar?

The FOMC will release the minutes of the January 28-29 policy meeting at 19:00 GMT on Wednesday. Investors will scrutinize the discussions surrounding the policy outlook.

In case the publication shows that policymakers are willing to wait until the second half of the year before reconsidering rate cuts, the immediate reaction could help the US Dollar (USD) gather strength against its rivals. On the other hand, the market reaction could remain subdued and short-lived if the document repeats that officials will adopt a patient approach to further policy easing without providing any fresh clues on the timing.

According to the CME FedWatch Tool, markets currently see virtually no chance of a 25 basis point rate cut in March. Moreover, they price in a more than 80% probability of another policy hold in May. Hence, the market positioning suggests that the publication would need to offer very clearly hawkish language to provide a steady boost to the USD.

Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief outlook for the USD Index:

"The Relative Strength Index (RSI) indicator on the daily chart stays well below 50 and the index remains below the 20-day Simple Moving Average (SMA), highlighting a bearish bias in the short term."

"On the downside, 106.30-106.00 aligns as a key support area, where the 100-day SMA and the Fibonacci 38.2% retracement of the October 2024 - January 2025 uptrend are located. If this support area fails, 105.00-104.90 (200-day SMA, Fibonacci 50% retracement) could be set as the next bearish target. Looking north, resistances could be spotted at 107.50-107.70 (20-day SMA, Fibonacci 23.6% retracement), 108.00 (50-day SMA) and 109.00 (round level)."