FOMC meeting: Probably only exciting in case of a declaration of war - Commerzbank

At least as far as the key interest rate is concerned, today's FOMC meeting is unlikely to be particularly exciting, as it is widely expected that the Fed will leave the interest rate corridor unchanged at 4.25-4.50%. The Fed thus appears unimpressed by the fact that US President Trump is calling for interest rate cuts with varying degrees of vehemence, Commerzbank's FX analyst Antje Praefcke notes.

Trump's rate cut demands unlikely to sway a cautious Fed

"Admittedly, inflation in the US has continued to weaken and is close to the inflation target, with the core rate still slightly higher. However, Trump's tariff policy threatens to generate an inflation shock when the suspension of tariffs ends in July. Although such a shock would be temporary, the Fed is likely to wait and see what impact it would ultimately have on prices and therefore not consider interest rate cuts in the summer. Apart from that, the US labor market is weakening but remains relatively robust, and the economy is also holding up well. All in all, both of the Fed's mandates argue in favor of a "wait and see" stance by the central bank."

"What will be more interesting for the market is what the Fed's new forecasts, especially for the interest rate (the so-called "dot plots"), indicate. Are the members of the FOMC expecting interest rate cuts in the second half of the year? In March, forecasts indicated that FOMC members expect two cuts later in the year. If this remains the case, our economists think that the next step will come in September. Our experts rule out July, as the Fed is likely to wait and see how the trade dispute develops."

"The market also expects two cuts towards the end of the year. In this respect, the meeting should be relatively neutral for the dollar. A somewhat stronger reaction could be expected if the Fed were to forecast only one cut for 2025, especially as this would be a declaration of war on the US government's vehement calls for cuts. In addition, the market has become convinced that the Fed is likely to sound quite dovish. If, contrary to expectations, it does not do so, the US dollar, which is currently undergoing a correction in the wake of the Middle East conflict, could appreciate further."