Well there we have it folks, the Fed Chairman Powell held interest rates. Shocker!
However, the comments are where the juicy stuff is, so let’s take a look at what the chairman had to say and what it could mean for me and you as retail forex traders.
The economic outlook looks solid.
If I had a shot every time I heard Jerome Powell say the economy is in a good place or the economy is looking solid, I would not know where my eyes would be pointing.
The chairman said that the economy is in a good position overall, but consumer spending is slowing. Retailers may start to see less demand for their products, which could hurt the bottom line of companies in sectors dependent on the consumer.
Inflation remains above target.
Inflation, which remains a big worry for the Fed considering the trade tariff ordeal is ramping up again, is still running above the Fed’s target. Again, not great for the stock market which is down today, in particular the Russel 2000 which is down -1.20% at the close.
Jobs are slowing (NFP Reports Friday).
The Fed Chairman commented on the labour market stating that job growth is slowing especially in the private sector. If the NFP report on Friday shows a significant fall in jobs, and a rise in the unemployment rate, then stocks could take another short dip.
Interest Rate probabilities fading.
The Fed is waiting for more data before deciding whether to cut interest rates. If rates stay high, it could put pressure on growth stocks. If the Fed cuts rates, borrowing becomes cheaper, which could give stocks a boost.
The CME FedWatch tool however points to rate cuts in September becoming more unlikely. Before the meeting, a chance of a cut was up at 63.3%, and after it moved to 45%. This could explain the recent boost in the USD against the G7 currencies too.
How This Affects the USD and Stock Market
If the Fed keeps interest rates steady or raises them (highly unlikely), the USD could strengthen. A stronger dollar can make imported goods cheaper but may hurt U.S. exports. As for stocks, expect some volatility as traders react to uncertainty around tariffs and interest rates.
Keep an eye on the upcoming employment, inflation, and interest rate data. A stronger than anticipated NFP on Friday could see the narrative of a rate hold in September increase in popularity, which could have a positive impact on the USD.