Jerome Powell comments on policy outlook after lowering interest rate by 50 bps

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 50 basis points to the range of 4.75%-5% after the September meeting and responds to questions in the post-meeting press conference.

Follow our live coverage of the Fed policy announcements and the market reaction.

Fed meeting press conference quotes

"Squarely focused on our goals."

"Economy is strong overall."

"Committed to maintaining economy's strength."

"Fed reduced amount of policy restraint today."

"Our decision today reflects growing confidence that strength in labor market can be maintained."

"Longer term inflation expectations appear well anchored."

"Our primary focus had been on bringing down inflation, which imposes significant hardship."

"Our patient approach has paid dividends."

"Inflation is much closer to our goal."

"Upside risks to inflation have diminished and downside risks to labor market have risen."

"We are attentive to risks on both sides of mandate."

"Our projections are not a plan or decision."

"We will adjust policy as necessary."

"If the economy remains solid, we can dial back the pace of cuts; equally, if the labor market deteriorates, we can respond."

"Since the last meeting, there has been a lot of data."

"Benchmark revisions showed payrolls may be revised down."

"We concluded that 50 bps cut was the right thing."

"We will make future decisions based meeting by meeting."

"We are recalibrating our policy stance."

"Nothing in our projections that suggest we are in a rush."

"We don't think we need to see further loosening of labor market to get inflation down to 2%."

"Unemployment rate is still a healthy level."

"Participation in job market is at high levels, wage increases still a bit above being consistent with 2% inflation."

"Vacancies still at a pretty strong level."

"Quits have come back down to normal levels."

"Together, they all say it is a solid labor market."

"Downside risks to employment have increased."

"So now, we manage the risks to both of our goals."

"Immigration is one of the things that has allowed unemployment rate to rise."

"Further declines in job openings will translate more directly into unemployment."

"My own sense is we are not going back to negative rates for long-term bonds; it feels neutral rate is higher than it was."

"It feels to me that neutral rate is probably significantly higher than it was pre-pandemic."

"Fed makes decisions based on its service to American people."

"Our decisions are never about politics or anything else."

This section below was published at 18:00 GMT to cover the Federal Reserve's policy decisions and the immediate market reaction.

The US Federal Reserve (Fed) announced on Wednesday that it lowered the policy rate, federal funds rate, by 50 basis points to the range of 4.75%-5% following the September policy meeting. Although the market forecast was for a 25 bps rate cut, there were growing expectations for a 50 bps reduction.

The revised Summary of Economic Projections (SEP), the so called dot-plot published alongside the policy statement, showed that projections imply 50 bps of additional rate cuts in 2024 from current level, 100 bps more in 2025 and another 50 bps in 2026.

Fed policy statement key takeaways

"Inflation has made further progress toward 2% objective, remains somewhat elevated."

"FOMC has gained greater confidence in inflation moving sustainably toward 2%, judges risks to employment and inflation goals are roughly in balance."

"Economic outlook is uncertain, FOMC is attentive to risks on both sides of mandate."

"Economic activity expanding at solid pace, job gains have slowed, unemployment rate has moved up but remains low."

"Will carefully assess incoming data, evolving outlook and balance of risks in considering additional rate adjustments."

"Quantitative tightening continues at previous pace."

"Vote in favor of policy was 11-1, with Fed Governor Bowman dissenting; bowman preferred a 25-basis-point reduction."

Key highlights from revised Summary of Economic Projections

• Fed officials' median view of fed funds rate at end-2024 4.4% (prev 5.1%).
• Fed officials' median view of fed funds rate at end-2025 3.4% (prev 4.1%).
• Fed officials' median view of fed funds rate at end-2026 2.9% (prev +3.1%).
• Fed officials' median view of fed funds rate at end-2027 2.9%.
• Fed officials' median view of fed funds rate in longer run 2.9% (prev 2.8%)."
• Fed projections show 9 of 19 officials see policy rate above the median forecast for 2024, 9 see it at the median, one sees it below that.
• Fed policymakers see 4.4% unemployment rate at end of 2024 and 2025 versus 4.2% now.
• Fed policymakers see end-2024 PCE inflation at 2.3% versus 2.6% in June projections; core seen at 2.6% versus 2.8%.
• Fed policymakers see 2.0% GDP growth in 2024 versus 2.1% in June.

Market reaction to Fed policy announcements

The US Dollar came under heavy selling pressure with the immediate reaction to the Fed rate decision. At the time of press, the US Dollar Index was down 0.55% on the day at 100.47.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

This section below was published as a preview of the Federal Reserve's policy decisions at 10:00 GMT.

• The Federal Reserve is widely expected to lower the policy rate after the September meeting.
• The revised Summary of Economic Projections and Fed Chairman Powell’s remarks could provide important clues about the rate outlook.
• The US Dollar faces a two-way risk depending on the size of the interest rate cut.

The US Federal Reserve (Fed) will announce monetary policy decisions following the September policy meeting and release the revised Summary of Economic Projections (SEP), the so-called dot plot, on Wednesday. Market participants widely anticipate that the US central bank will lower the policy rate, but the size of the cut is up in the air.

The CME FedWatch Tool shows that markets are currently pricing in a nearly 60% probability of a 50 basis points (bps) rate cut against a nearly 40% chance of a 25 bps reduction. The market positioning suggests that the US Dollar (USD) faces a two-way risk heading into the event.

The US Bureau of Labor Statistics reported last week that the core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose 0.3% on a monthly basis in August. This reading followed the 0.2% increase recorded in July and came in above the market expectation of 0.2%. Following this report, investors saw a diminishing chance of a large rate cut.

In an article published a day later, on September 12, The Wall Street Journal reporter Nick Timiraos, who is widely seen as a “Fed insider,” wrote that the size of the Fed’s rate cut at the September meeting will be a close call. Additionally, the annual producer inflation, as measured by the change in the Producer Price Index (PPI), declined to 1.7% in August from 2.1% a month before. Markets shifted their view toward a 50 bps cut, which caused the US Dollar to come under renewed selling pressure. 

Previewing the Fed meeting, “the FOMC is widely expected to start its easing cycle next week, with the Committee reducing rates by 25bp. The decision to cut between 25bp vs 50bp will be close,” TD Securities analysts said in a recently published report and added: 

“In our view, the dot plot will be the most prominent part of the Fed's guidance next week, along with Chair Powell's post-meeting presser. We expect the Fed's forward guidance to lean broadly dovish.”

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

When will the Fed announce its interest rate decision and how could it affect EUR/USD?

The US Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy statement alongside the SEP on Wednesday, September 18, at 18:00 GMT. This will be followed by Fed Chairman Jerome Powell's press conference starting at 18:30 GMT. 

The interest rate decision is likely to trigger the immediate market reaction. A 25 bps rate cut is likely to provide a boost to the USD, while a 50 bps reduction would have the opposite effect on the currency’s valuation. Following a knee-jerk reaction, the revised SEP could have a more lasting impact on the USD.

June’s dot-lot showed that 4 of 19 officials saw no rate cuts in 2024, 7 projected a 25 bps rate reduction, while 8 marked down a 50 bps cut in the policy rate. In case the new dot-plot shows that policymakers see the policy rate 100 bps below the current rate of 5.25%-5.5% at the end of the year, the USD could still come under pressure even if the Fed opts for a 25 bps cut because that would imply three consecutive rate reductions in the last three meetings of the year, including September, and one of them being a 50 bps cut. If the Fed opts for a 25 bps cut and the dot-plot points to two more 25 bps cuts in November and December, the USD could gather further strength.

Investors will also pay close attention to comments from Chair Powell in the post-meeting press conference. In case the Fed goes for a 25 bps cut but Powell says in the presser that it was a close call with some policymakers arguing in favor of a large cut, the USD could struggle to preserve its strength. Powell’s remarks on the growth outlook could also influence the risk perception and the USD’s performance. If Powell adopts a pessimistic tone about the economic outlook and notes a risk of recession, risk-off flows could dominate the markets. In this scenario, the USD is likely to find demand as a safe haven.

In summary, the September Fed event will have too many moving parts and surely ramp up market volatility. It could be too risky for investors to take large positions in the immediate aftermath of the Fed and they could opt to wait until the dust settles.

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD:

“Following the pullback seen in the first half of September, EUR/USD has turned bullish, with the Relative Strength Index (RSI) on the daily chart rising toward 60. Additionally, the pair recovered back above the 20-day Simple Moving Average (SMA) after closing below it for five consecutive days, reflecting growing buyer interest.”

On the upside, 1.1200 (static level, end-point of July-August uptrend) aligns as the first resistance before 1.1275 (July 18, 2023, high) and 1.1360 (static level from January 2022). In case the pair returns below 1.1090-1.1080 (20-day SMA, Fibonacci 23.6% retracement) and starts using this area as resistance, technical sellers could take action. In this scenario, the next support could be spotted at 1.1000-1.0980 (Fibonacci 38.2% retracement, 50-day SMA) before 1.0940 (Fibonacci 50% retracement).

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