The US dollar traded modestly weaker after the FOMC kept rates on hold, as the statement and press briefing conveyed more caution on further tightening. Rate-hike expectations were pared back, with the 2-year US Treasury yield around 9bps lower than before the decision, even though there were two hawkish dissenters. Both Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack preferred a 0.25 point increase.
FOMC Signals Caution and Adjusts Outlook
The Committee said more information would guide whether policy is sufficient to return inflation to target, while describing activity as expanding at a strong pace, supported by strong productivity growth and robust capital investment.
Market Response and External Influences
The message acknowledged tighter financial conditions and firmer productivity, tempering expectations for a more aggressive hiking path and cooling the dollar’s upside. However, the currency continued to find support from developments outside the US, including higher energy prices and rising fiscal and political risks in the euro area.
