Despite expressing disappointment with recent inflation readings, Federal Reserve officials indicated at their last policy meeting that they still believe price pressures will gradually ease. These sentiments were reflected in the minutes of the Fed session from April 30 to May 1.

While the current policy response “would include maintaining” the central bank’s benchmark interest rate at its current level, the minutes released on Wednesday also included discussion on potential further increases.

The minutes also revealed a debate on the restrictiveness of the current monetary policy in featherlight of the strength of the economy. This discussion is crucial given the need for policy to be “restrictive enough” to curb inflation.

Policymakers now appear inclined to keep the Fed’s benchmark interest rate in the range of 5.25% to 5.50% through at least September, after their confidence in easing price pressures was undermined by higher-than-expected inflation in the first three months of this year.

The following section was published at 09:00 GMT in anticipation of the release of the FOMC minutes from its May 1 meeting.

• On Wednesday, the Fed will publish the minutes of its policy meeting to be held from April 30 to May 1.
• Jerome Powell and colleagues’ discussions on the inflation outlook will be analyzed in detail.
• Markets see less than a 40% chance that the Fed will leave interest rates unchanged in September.

The Federal Reserve (Fed) will publish the minutes of its policy meeting to be held from April 30 to May 1 on Wednesday at 18:00 GMT. Investors will pay particular attention to comments on the inflation outlook and the possible timing of the monetary policy turnaround.

The Fed is widely expected to keep policy unchanged in June and July

As expected, the Fed left its monetary policy settings unchanged after its April 30-May 1 policy meeting. In its statement, the US central bank said there had been no recent further progress towards its 2% inflation target. On its quantitative tightening strategy, the Fed noted that it would tardy its balance sheet decline by lowering the cap on Treasury bond purchases to $25 billion per month from $60 billion starting June 1.

At a post-meeting news conference, Fed Chairman Jerome Powell noted that another policy move was unlikely to be another interest rate escalate, but he explained that it would be appropriate to hold off on interest rate cuts if inflation proves more persistent and the labor market remains stable robust. Powell reiterated that they need to have more certainty about the direction of inflation toward 2% before considering a policy pivot.

Data released by the U.S. Bureau of Labor Statistics show that on May 15, the core consumer price index (CPI) rose 3.6% year-over-year in April. This reading followed the 3.8% escalate recorded in March and was in line with market expectations. On a monthly basis, both the CPI and core CPI increased by 0.3% after increasing by 0.4% in March.

According to the CME FedWatch Tool, markets see no chance of a Fed rate cut in June or July. However, the probability of the Fed maintaining interest rates in September remains around 37%.

Ahead of the Fed’s release, “the minutes of the latest FOMC meeting are likely to attract attention next week following the Committee’s decision to communicate that ‘higher for longer’ remains the preferred policy for the foreseeable future,” TD Securities analysts said, adding: “Further issues will also be in focus.” related to the decision to reduce the QT interval.”

When will the FOMC minutes be released and what impact might it have on the US dollar?

The Fed will publish the minutes of its April 30-May 1 policy meeting at 6:00 p.m. GMT on Wednesday. Investors will closely monitor discussions on the inflation outlook and look for possible clues as to the timing of the monetary policy turnaround.

Following the release of the April inflation report, several Fed policymakers adopted a cautious stance on the interest rate outlook while acknowledging modest progress in disinflation. San Francisco Fed President Mary Daly noted Monday that while she expects shelter inflation to slowly improve, she said she doesn’t expect rapid progress. Daly also noted that she is not confident that inflation will sustainably fall toward the Fed’s 2% inflation target. Additionally, Fed Vice Chairman for Supervision Michael Barr argued that the Fed is well-positioned to keep policy unchanged and watch the economy.

If the minutes show that policymakers favor a patient approach to easing policy in the face of robust inflation and favor a single interest rate cut later in the year, the US dollar (USD) could maintain its position against its main rivals. If the publication shows that officials are increasingly concerned about growing signs of slowing economic activity and remain confident about the inflation outlook, risk flows could dominate markets, hurting the US dollar.

Eren Sengezer, Chief Analyst of the European Session, presents a compact technical assessment of the USD Index:

“The USD Index (DXY) remains dangerously close to the 104.30-104.20 area where the 200-day and 100-day simple moving averages (SMAs) lie. In the event that the index falls below this area and starts using it as resistance, technical sellers can take action. In this scenario, the 103.70 level (50% Fibonacci retracement of the January to April uptrend) could act as temporary support before 103.00 (61.8% Fibonacci retracement). On the other hand, resistances can be seen at 105.25 (23.6% Fibonacci retracement, 20-day SMA), 106.00 (static level, psychological level) and 106.50 (end point of the uptrend).”