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Fed Meeting: USD, Dow Reverse on Powell Rhetoric After FOMC Rate Review

Fed Meeting: USD, Dow Reverse on Powell Rhetoric After FOMC Rate Review

2019-05-01 18:29:00
Rich Dvorak, Junior Analyst
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FEDERAL RESERVE FOMC MEETING – TALKING POINTS:

  • The Fed announced its decision to leave its policy interest rate range unchanged at 2.25-2.50 percent as expected
  • Immediately following the FOMC press release, the US Dollar slid lower while the Dow Jones jumped higher, but price action reversed in response to the Powell presser
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The Federal Reserve just released its latest monetary policy update which announced the central bank’s decision to remain on the sidelines and leave its target interest rate range unchanged at 2.25-2.50 percent. The verdict comes as expected according to overnight indexed swap pricing seeing that markets were pricing only a 2.2 percent chance that the Fed would move on rates today.

OIS FED FUTURES RATE CHANGE PROBABILITY FOR MAY 2019 FOMC MEETING PRICE CHART: DAILY TIME FRAME (AUGUST 01, 2018 TO MAY 01, 2019)

Fed Futures Interest Rate Change Probability Price Chart FOMC

The updated press statement highlighted that “economic activity rose at a solid rate” over the intermittent period. This compares to language from the Fed’s March meeting press release which stated “economic activity slowed from its solid rate in the fourth quarter.” The Federal Reserve also noted further declines in inflation while growth in household spending and business fixed investment slowed as well.

Unsurprisingly, the FOMC reiterated its intent to remain patient as it observes incoming data and economic developments in determining what future adjustments it will make to the target federal funds rate. Labor market conditions, inflation indicators, in addition to readings on financial and international developments were underscored as areas that the Fed will continue to monitor closely.

DOW JONES INDEX PRICE CHART: 1-MINUTE TIME FRAME (MAY 01, 2019 INTRADAY)

Dow Jones Index Price Chart after FOMC Fed Meeting and Chair Powell

The Dow Jones began to tick higher immediately following the FOMC press release. However, gains were quickly erased in response to follow-up commentary from Fed Chair Jerome Powell. The head central banker began to list recent positive developments such as the possibility of a disorderly Brexit being pushed to the back burner, economic data from China and Europe beginning to show signs of improvement and continued progress on trade between the US and China.

The upbeat rhetoric likely dampened equity investor hopes for an increasingly dovish Fed and sent stocks sliding in response. Powell continued that these risks have moderated somewhat but concerns still remain in these areas. Consequently, Powell reiterated the Fed’s commitment to patience and data-dependency seeing that there is no strong case for moving rates in either direction at this time.

DXY US DOLLAR INDEX PRICE CHART: 1-MINUTE TIME FRAME (MAY 01, 2019 INTRADAY)

DXY US Dollar Price Chart after FOMC Fed Meeting and Chair Powell

As for the US Dollar, the DXY Index slid further into negative territory right after the Fed released its monetary policy statement. Although, USD surged higher as Powell spoke at the podium. The Chair stated that there is ‘no evidence at all of overheating’ in the market and his outlook remains a healthy one. Powell continued by saying that he expects that GDP growth will continue to rebound throughout the year with expectations of consumer spending and business fixed investment bouncing back. This could be boosting prospects for USD bulls and the case that Fed may not be done tightening.

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- Written by Rich Dvorak, Junior Analyst for DailyFX

- Follow @RichDvorakFX on Twitter

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