GBP/USD spikes as Fed sees slower growth and stubborn inflation

• GBP/USD jumped after Fed scrubs growth projections on policy concerns.
• Fed long-run inflation expectations stuck at 3.0%, Fed funds rate expectations pinned at 3.9%.
• Rate markets still see odds of a rate cut in June, but hope is dwindling fast.

GBP/USD lurched higher on Wednesday, tapping 1.2985 in intraday trading after the Federal Reserve's (Fed) latest rate call came in broadly as expected, with the Fed keeping rates steady at 4.5%. Markets broadly anticipated another hold from the Fed, but adjustments to the Fed's expectations could throw markets for a loop as investors await Fed Chair Jerome Powell's press conference.

According to the Fed, growth expectations for 2025 have been severely hampered by the Trump administration's policy approach of announcing then walking back trade tariffs via social media post. The Federal Open Market Committee (FOMC) trimmed its end-2025 Gross Domestic Product (GDP) forecast at just 1.7%, down sharply from the 2.1% forecast posted in December.

The median dot plot of interest rates also sees the end-2025 interest rate stuck at 3.9%, remaining largely unchanged from the previous policy meeting. The FOMC has also decided to slow its balance sheet runoff beginning in April. Rate markets are still pricing in better-than-even odds that the Fed will still deliver a quarter-point rate cut in June, but the margin has shrunk slightly with 42% of rate traders expecting no change at all.

More to come...