Fed Policy in Focus: Rate Cut Expectations & USD Direction

The US Federal Reserve's future policy path remains a central focus for markets, with diverging views emerging amongst policymakers. While some, like Fed member Miran, advocate for a substantial 100 basis point rate cut this year, citing manageable inflation and no need for high rates to support growth, others, such as Thomas Barkin, adopt a more cautious approach, emphasizing the need to monitor employment and inflation data closely. Barkin acknowledges the economy's resilience but highlights structural risks in the final phase of disinflation. The potential for rate cuts is largely framed as insurance for the labor market. Market expectations currently price in two rate cuts for the year, remaining relatively stable despite the potential leadership transition with Kevin Warsh's nomination. Analysts at Bank of America suggest further USD weakness awaits clearer Fed guidance on both rate policy and balance sheet reduction. The EUR/USD pair is consolidating, awaiting key data releases from both the Eurozone and the US, with potential Fed easing supporting the Euro. Concerns remain regarding data collection delays due to the US government shutdown.