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As everyone knows, on Wednesday evening, the FOMC concluded its fourth "equatorial" meeting of the year, marking the first for Kevin Warsh as head of the central bank. The new chairman started the next phase of his career quite dramatically. Previously, Warsh had repeatedly criticized the central bank for its overly extensive communication regarding monetary policy. In his view, the Federal Reserve should limit itself to providing the decisions made and a brief summary of economic forecasts. Warsh viewed the "dot plot" charts reflecting the rate expectations of all members as unnecessary. During the meeting, the new FOMC chair was the only one who did not provide his forecast for future rate changes.
This raises an interesting question. What is it about the "dot plot" that Warsh found unappealing? Why does Warsh oppose excessive communication from the Fed? Isn't this part of a new strategy by the central bank aimed at making decisions over time without prior notification to the markets? On Wednesday night, Warsh spoke about elevated inflation, signaling to the markets that he is fully committed to bringing consumer prices back to the target. However, we all know that Donald Trump demands maximal policy easing, and it is unlikely that Warsh will follow in Jerome Powell's footsteps, who managed the Fed as he deemed necessary rather than as the White House required.
The new Fed chair believes that the central bank should not provide markets with information about potential future rate trajectories. He also stated that he has decided to form five groups to study how the Fed communicates with the public, what information and statistics it uses in decision-making, and what approaches the governors apply to assess inflation prospects. According to Warsh, this is necessary to ensure a "sober approach" by the governors.
In my opinion, all of the information presented about changes within the Fed suggests that Warsh will not follow Powell's path. The new chair will attempt to change the very methodology of decision-making to make it more suitable for Donald Trump. If the methodology is altered, the actual rate could need to be lower than it currently is, and the normal inflation value might be higher than 2%. Regardless, if a bicycle rides well, its wheels, handlebars, and other parts should not be changed. I believe Warsh will adhere to "dovish" views, but first needs to rebuild the Fed's methodological foundation.
Based on the analysis of EUR/USD, I conclude that the instrument remains within an upward section of the trend, while in the shorter term, it is within a downward segment of the trend that may be approaching completion. In my view, it is a good time to consider forming long positions, although the instrument could drop below the 14 figure within wave C. If this assumption holds true, it would be better to wait a bit. I also believe the market will take into account that the European Central Bank is also implementing tightening policies and that the geopolitical conflict in the Middle East has concluded.
The wave structure for GBP/USD has become clearer. Currently, the instrument has built three waves down, while EUR/USD has constructed five. Consequently, the British pound may limit itself to forming a corrective structure, and both currency pairs may begin building upward trend segments. At this moment, this is merely an assumption, but it is a probable one. If it is correct, the instrument will begin to rise with targets around the 35 figure and above. Market participants currently have a good opportunity to buy.
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