Fed expected to hold rates amid trade uncertainty – Commerzbank

Apart perhaps from the US President, hardly any market participants are likely in any doubt that the US Fed will leave interest rates unchanged today. The statement following the decision should also come as little surprise: Uncertainty regarding the impact of US tariff policy is still too high, one would have to wait for data on the economy and especially on inflation to be able to assess in which direction the risks are tilted - various FOMC members have hinted at this sufficiently in advance. Against this backdrop, the Fed meeting threatens to become a non-event for the dollar - despite the commotion in recent weeks, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

Powell faces renewed political pressure on cuts

"Fed Chair Jay Powell will not be able to avoid commenting on the US President's attacks. But what can he say, apart from what he has already said on the subject in the past? The independence of the US Federal Reserve is established by law and so on and so forth. Today, it should still be easy for Powell to give the impression that the Fed is independent and can resist political pressure to cut interest rates."

"An increasingly weak economy is likely to massively increase political pressure. The longer the Fed can withstand this pressure, i.e. the longer it holds interest rates, the better for the dollar. In contrast, any signs that it will soon cut interest rates are likely to weaken the US currency. After all, the suspicion that the political pressure has had an effect will be difficult to shake off in this case. Our US experts assume that the Fed will take until September to make its first rate cut. Until then, its steadfastness should benefit the dollar."

"This is all the more the case the more economic growth threatens to weaken. Some may then accuse the Fed of falling 'behind the curve'. However, independence is not only characterised by being able to do the right thing (from the central bank's point of view), but - and this might be an umcomfortable truth - it is just as important to have the freedom to make potential mistakes."