AUD/USD steady at 0.6545 as Fed fails to shift rate cut expectations
- Fed holds rates steady, reiterates inflation and labor market risks.
- Markets still price in three Fed cuts in 2025 despite cautious tone.
- AUD/USD holds near 0.6545 as traders await stronger directional cues on Powell's presser.
The Australian Dollar was unmoved following the Federal Reserve’s decision to keep rates unchanged at 4.5%, with policymakers maintaining a cautious tone on inflation and employment. While the Fed emphasized uncertainty and rising risks, it offered no clear signals on future easing, opting instead to stick with its current tightening stance and balance sheet runoff.
Despite this, market pricing remains dovish, with traders still expecting three Fed rate cuts before year-end. AUD/USD held near 0.6545, reflecting investor hesitation to reprice aggressively without new macro triggers. With short-term rate futures paring only minor losses after the announcement, the lack of Dollar momentum kept the Aussie locked in its recent range. Attention now turns to chair Powell's press conference where traders will seek further guidance.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.