US interest rates. Which way will Warsh steer?
The Federal Reserve will announce today the June decision on U.S. interest rates.
Particular attention is drawn to the fact that this is the first meeting of the Federal Open Market Committee (FOMC) chaired by Kevin Warsh, the new head of the U.S. central bank.
In recent months, the potential direction of monetary policy under Donald Trump’s nominee has become a subject of discussion.
The topic gained importance especially due to the U.S. president’s appeals urging monetary easing.
Read also: Dollar’s “risk” with the Fed. Economists have changed forecasts. What will happen to USD/PLN and EUR/USD?
Adam Fuchs, an analyst and currency dealer for Walutomat.pl, told FXMAG what decision he expects after Warsh’s first Fed meeting.
“I won’t hide that, in line with market consensus, I would be more than surprised if the FOMC decided to move rates now. Yes, U.S. inflation again looks worrisome, as May CPI rose to 4,2% YoY, but the labor market remains strong enough that the Fed has no reason today to act under the pressure of a second mandate,” he said.
“In other words, the space for nervous decisions is limited,” he added.
The new Fed chief is unlikely to enthusiastically push for rate hikes either. Kevin Warsh more often talks about tightening the Fed’s balance sheet through reductions rather than further raising the cost of money. That’s why the June meeting could be particularly interesting for the market.
First appearances of a new chair always attract attention, and this time there’s also the dot plot release, i.e., the decision makers’ expectations for rate levels in upcoming quarters. That by definition increases the risk of questions, uncertainty, and over-interpretation.
The expert emphasized that among the biggest unknowns remains the central bank’s communication with consumers and investors.
“If Warsh truly wants to limit Fed transparency, investors may take it cold. Especially at first, when the market is just trying to understand what line the new central bank chief actually wants to impose. In the medium term, decisions will still be most important, but poorly communicated ones can cause unnecessary volatility,” he said.
“However, if the FOMC most likely keeps rates unchanged, the narrative will be even more important for the market. The previous meeting already showed divisions unseen in U.S. monetary policy since the early 90s. Therefore, for the base scenario I assume that this time sharper hawkish tones may emerge, especially regarding inflation and long‑term effects of a commodity shock. At the same time, I expect at least partial easing of such messaging from Warsh,” he added.
In the end, the dollar has a chance to stay in consolidation.
This would mean that EUR/USD would not deviate much from 1,16 USD, and USD/PLN could still move within 3,65-3,70 PLN.
Source: Trading Economics.
Read also: Dollar’s long path to 4 PLN? The expert released forecasts for USD/PLN and EUR/USD. “The dollar could gain.”
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Dollar and euro rates on Wednesday, June 17
The dollar to zloty on Wednesday, June 17 is at 3,65 PLN.
Chart. Dollar to zloty (USD/PLN)
Source: Trading Economics.
The euro to dollar reaches 1,16 USD.
Chart. Euro to dollar (EUR/USD)
Source: Trading Economics.
Read also: Dollar before a chance to break out? Expert: “Capital will flow back to USD.”
See also: Dollar before a “nervous and dynamic” move, euro waiting to fall? Expert released a forecast for USD/PLN and EUR/USD
