USD: Fed acknowledges future policy path is less clear

What a difference a couple of months can make. In 2018, the Federal Reserve hiked interest rates four times as the US economy proved to be consistently strong. However,
sentiment in recent times has been far more dovish, with policymakers stating that they are now on ‘data watch’ and some major banks have changed their expectations to
no rate hikes this year. Some investors are even pricing in rate cuts in 2020 – something that was unthinkable not that long ago. It just goes to show how quickly
things can – and often do – change.

The FOMC meeting minutes showed that the way ahead for the Fed is less clear than it was just a short time ago. A few members reluctantly increased interest rates in
December which will probably come as a surprise to many people – some policymakers felt that the lack of inflationary pressure justified keeping rates on hold.

In sharp contrast to the rest of the week, today is fairly quiet in the UK, eurozone and US. However, we will see initial jobless claims up to 6 January 2019 and
several Federal Reserve policymakers are set to deliver speeches this evening. The main focus, of course, will be on Fed Chair Jerome Powell’s comments and whether he
has anything to say in response to Trump’s latest attack on the central bank’s recent interest rate decisions.

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