GBP/USD lurched higher on Wednesday, tapping 1.2985 in intraday trading after the Federal Reserve's (Fed) latest rate call came in broadly as expected, with the Fed keeping rates steady at 4.5%. Markets broadly anticipated another hold from the Fed but are looking for signs that the Fed will continue to deliver rate cuts if the US labor market continues to break down.
According to the Fed, growth expectations for 2025 have been severely hampered by the Trump administration's policy approach of announcing then walking back trade tariffs via social media posts. The Federal Open Market Committee (FOMC) trimmed its end-2025 Gross Domestic Product (GDP) forecast at just 1.7%, down sharply from the 2.1% forecast posted in December.
The median dot plot of interest rates also sees the end-2025 interest rate stuck at 3.9%, remaining largely unchanged from the previous policy meeting. The FOMC has also decided to slow its balance sheet runoff beginning in April. Rate markets are still pricing in better-than-even odds that the Fed will still deliver a quarter-point rate cut in June, with bets rising above 60% after Federal Reserve Chair Jerome Powell acknowledged that weakening growth and labor figures will be a key point of focus for policymakers.
Not all is rosy in the Fed's universe, however; Fed Chair Powell noted that whipsaw tariff policies from the US could spark further increases in inflation, which poses a significant risk to the Fed's playbook moving forward.
Source: Fxstreet
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