What to Expect from the Fed Today and How to Act

[Ben Graham]

Today, Federal Reserve officials are expected to support the weakening U.S. labor market by cutting interest rates. This would mark a shift after months of holding back due to concerns about tariff-driven inflation.

Economists and analysts are watching the decision closely, as it could significantly affect the trajectory of the U.S. economy. A rate cut is expected to stimulate borrowing and investment, potentially leading to higher employment and stronger growth.

However, some experts are concerned about the potential long-term consequences of such a move. They argue that a return to lower interest rates could inflate asset bubbles and increase financial instability. Moreover, they warn that the cut might prove ineffective if businesses and consumers remain hesitant to borrow and spend amid ongoing economic uncertainty.

The policy shift comes under unrelenting pressure from President Donald Trump, who this week pushed for a larger cut. The political drama has also raised uncertainty about who would even participate in this week's policy meeting, although the lineup was likely finalized Monday evening when the Senate confirmed a new Fed governor.

Beyond the political intrigue, investors will focus on Chair Jerome Powell's remarks and the updated economic projections for insights into the likely path of interest rates in the coming months. Particular attention will be paid to the so-called dot plot — the chart showing individual forecasts of FOMC members regarding future rates. Significant divergences in these projections could highlight divisions within the Fed and add uncertainty to the markets.

Investors will also study the Fed's updated forecasts for inflation, GDP growth, and unemployment. Any major changes in these projections could strongly influence market expectations and investor behavior.

"Each cut will be more difficult than the last, unless the labor market shows further signs of deterioration," Bank of America analysts noted.

As mentioned earlier, Fed watchers see potential divisions over the expected quarter-point cut. Some officials may push for a deeper reduction, while others may prefer to keep rates unchanged. Ultimately, the debate centers on which concern outweighs the other: a labor market on the brink of sharp deterioration or accelerating inflation driven by tariffs.

Either way, if we don't see significant changes in policymakers' forecasts and today's cut is already priced in, the dollar could strengthen in the short term. But if most committee members adopt a more dovish outlook for the future—or worse, decide on a half-point cut—the dollar will likely fall against risk assets, including the euro and the British pound.

Technical Outlook for EUR/USD: Buyers now need to take control of the 1.1875 level. Only then can they aim for a test of 1.1910. From there, the pair could move toward 1.1940, though achieving this without support from large players will be difficult. The ultimate target lies at the 1.1985 high. On the other hand, meaningful buying interest is expected only around 1.1835. If absent there, it would be preferable to wait for a retest of 1.1790 or open long positions from 1.1750.

Technical Outlook for GBP/USD: Pound buyers need to break through nearby resistance at 1.3665. This would open the way toward 1.3710, above which further gains will be challenging. The furthest target is around 1.3745. If the pair declines, bears will attempt to take control of 1.3625. A break below this range would deal a serious blow to bulls and push GBP/USD toward 1.3590, with the potential to extend losses to 1.3550.

The material has been provided by InstaForex Company - www.instaforex.com