The Federal Reserve’s decision to keep its policy rate steady was the most significant economic development of the past week.
Their announcement suggested that the economy might face some challenges ahead due to rising inflation, weaker growth, and an increased risk of recession, with some signs of stagnation.
During his press conference, Fed Chairman Powell described the economy as “strong,” but he also emphasised that the outlook remains “highly uncertain” due to the new administration and recent policy changes.
He pointed out that tariffs and trade barriers are driving these concerns.
Inflation estimates have gone up slightly to 2.2%, growth forecasts have dropped to 1.7%, and unemployment predictions have risen to 4.4%.
Powell acknowledged that inflation continues to be relatively elevated. Regarding interest rates, he mentioned that the Fed is not in a hurry and is willing to wait for more clarity.
Despite revisions, the Fed’s dot plot still indicates two potential rate cuts this year. Notably, the committee’s leaning suggests a shift towards fewer cuts, with eight officials now considering one or none this year, down from the previous forecast of four cuts.
I expect that the May Federal Open Market Committee (FOMC) announcement will offer clearer insights.
The US plans to implement reciprocal tariffs starting in April.
To address the trillion dollar deficit, President Trump intends to discuss a more balanced trade relationship with his Chinese counterpart.
US Inflation is already above the targeted level and with geopolitical risks and external uncertainties, it is likely challenging for the Fed to predict fiscal outcomes with confidence in light of the trade war narrative.
This negative trend is putting pressure on the US dollar, contributing to a sharp recovery of major currencies like the Euro, GBP, Japanese Yen and Swiss Franc. However, the USD received some backing following the Fed’s announcement, which indicated a cautious approach to rate cuts.
Meanwhile, as expected, the Bank of England (BoE) kept its interest rate steady, with the monetary policy committee voting 8-1 to maintain the current rates.
The BoE Governor acknowledged the uncertainty surrounding global trade and the tariff crisis, indicating that they will be monitoring the situation closely.
The BoE is wary of the outlook due to weaker consumer and business sentiment but anticipates an increase in growth from 0.1% to about 0.25%. Nevertheless, Bank of England’s Governor Andrew Bailey believes that interest rates will gradually decline.
Next week, the market will focus on several key economic indicators, including S&P Global flash manufacturing and services PMIs, US Consumer Confidence, New Home Sales, US Durable Goods Orders, Pending Home Sales, US Q4 GDP, US Core PCE, and figures on Personal Income and Spending.
Weekly outlook - March 24-28
#GOLD @ $ 3023- The volatility of gold has risen, and the potential for a correction could lead to significant drops in prices. However, there will likely be buying interest during price dips.
This week, there are some positive signs that could help lift prices, but geopolitical tensions and tariffs are two factors that might bolster metal purchases.
On the upside, a break above $ 3055 may lead to a test of $ 3068.
However, a drop below $ 2988 could drive gold prices down to the $ 2965-70 range.
#EURO @ 1.0814- The European currency might rise at first, but it is anticipated to have difficulty surpassing 1.0925. On the other hand, if it does not manage to fall below 1.0710, Euro is expected to trade within a defined range.
#GBP @ 1.2918- Pound Sterling needs to decisively break through 1.3050 to continue its upward trend, which may not be easy to crack.
On the lower end, there is significant support near 1.2810, which may provide a basis for a bounce back. A break below this level could lead to a decline towards 1.2760.
#JPY @ 149.31- USD is likely to stay around 148.20 and may test and surpass 150.50, aiming for 151.20. On the downside, keep an eye on 147.50.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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