EUR/USD corrects course after Fed maintains status quo

The Fed left the Fed Funds Rate unchanged at 5.25%-5.50% as widely expected but in its accompanying forecast document, the Summary of Economic Projections (SEP), it continued to foresee rates falling to a median target of 4.6% in 2024, like it did in December. 

This is equivalent to expecting around three 25 bps (0.25%) of rate cuts this year, even though some market participants had speculated it might reduce the number of cuts to two because of stickier-than-expected inflation. 

It did, however, see less rate cuts in 2025, with the Fed Funds Rate falling to a median of only 3.9% rather than the 3.6% in the December SEP. 

The Fed revised up its GDP forecast substantially, to 2.1% for 2024, from 1.4% in December – regarded by many as indicative of a “soft landing”. 

The central bank’s preferred gauge of inflation, the Core Personal Consumption Expenditure (PCE) – Price Index, was revised up to 2.6% for 2024 from 2.4% in December. 

In his press conference after the meeting, Federal Reserve Chairman Jerome Powell sought to play down the latest batch of hot inflation readings, saying only two months of data was not enough to dissuade the Fed from its path. 

The overall interpretation was of a “dovish hold,” which resulted in the US Dollar selling off from overbought territory. The EUR/USD pair, which measures the buying power of a single Euro (EUR) in US Dollars (USD), rallied back up into familiar territory.