FOMC Preview: Fed Hold to Increase Pressure from Trump?

FOMC Meeting Key Takeaways

• Traders and economists confidently expect the Fed to leave interest rates unchanged in the 4.25-4.50% range.
• With no Summary of Economic Projections (SEP), traders will key in on Fed Chair Jerome Powell’s press conference.
• EUR/USD broke out of its bearish trend, opening the door for a potential continuation toward 1.0600 next.

When is the FOMC Meeting?

The January 2025 FOMC meeting will conclude on Wednesday, January 27th at 2:00 ET.

Fed Chairman Powell’s press conference will begin at 2:30 ET.

What are the FOMC Interest Rate Expectations?

Traders and economists confidently expect the Fed to leave interest rates unchanged in the 4.25-4.50% range.

As of writing midday Monday, Fed Funds futures traders are pricing in 97% odds of no change to interest rates per CME FedWatch:

Source: CME FedWatch

With only a vanishingly small probability of a substantive policy change this month, no Summary of Economic Projections (SEP) set for release, and little in the way of necessary updates to the FOMC’s Monetary Policy Statement outside of “marking to market” officials’ assessment of the labor market, Fed Chairman Jerome Powell’s press conference is likely to be the main volatility catalyst for traders.

FOMC Meeting Forecast

After delivering a widely-expected 25bps cut in December, the FOMC is almost certain to leave interest rates unchanged in the 4.25%-4.50% range this month, especially after a much-stronger-than-expected employment report earlier this month.

Given this is an “off” meeting for the Summary of Economic Projections, Chairman Powell will have near-complete control over how the Fed’s near-term expectations are conveyed. Expect him to try to minimize market disruption by emphasizing a patient, “data-dependent” approach to interest rates for now, buying time for a clearer economic narrative to emerge.

Speaking bluntly, if inflation and labor market data remains as strong as it has over the last month or two, there’s a strong argument for the Fed to leave interest rates unchanged throughout the entire year, if not outright start raising them again. That said, Jerome Powell and Company believe that eventually, the dampening effect of previously high interest rates on the housing market and real estate sector more broadly will start to take its toll on the broader economy.

Ultimately, the most traders can hope for is that this week’s FOMC meeting will be a “setup” meeting for future Fed policy decisions. The next potentially “live” Fed meeting will be in March, where traders are pricing in a roughly 1-in-4 chance of another 25bps rate cut, though most analysts expect a more extended pause until the middle of the year. Powell’s comments this week, along with inflation and employment data over the next month or two, will shape the markets expectations for that meeting and the first half of the year.

As a final wildcard, this will be the first formal FOMC meeting of President Donald Trump’s second term. Expect Powell to deflect and dodge questions about the Fed’s independence and the potential for political meddling into monetary policy per usual. Likewise, Powell is likely to re-emphasize that the central bank doesn’t try to predict future policies (e.g. tariffs, tax cuts, etc), only respond to their economic impact if and when they are enacted. These types of questions will inevitably a bigger talking point over the next four years than they have been over the last four years.

US Dollar Technical Analysis – EUR/USD Daily Chart

Source: TradingView, StoneX

The world’s most widely-traded currency pair has seen an impressive bounce off the 2+ year lows in the 1.0200 area to trade above 1.0500 as of writing. Looking at the chart above, EUR/USD has broken out above its descending channel, 50-day EMA, and horizontal resistance at 1.0465. As long as the pair remains above those thresholds, the near-term path of least resistance will remain to the topside, with potential for a continuation toward 1.0600 before encountering the next level of horizontal resistance.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX