18.02.202609:36 Forex Analysis & Reviews: Fed officials split on whether rate cuts are warranted

Yesterday, Federal Reserve official Michael Barr articulated a clear position on future monetary policy, stressing the need for patience and consistency in the fight against inflation. He said that interest rates should remain at current levels until officials see convincing evidence that inflation is sustainably moving back toward the central bank's 2% target. This approach is intended to ensure that any decisions to lower borrowing costs are based on a solid data foundation and an adequate appraisal of economic realities.

"Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks," Barr said on Tuesday in remarks prepared for an event in New York. The quote clearly reflects a cautious and pragmatic stance among some Fed leaders. By "the evolving outlook" and "the balance of risks," he meant a range of factors, including labor market dynamics, growth momentum, geopolitical events, and, of course, inflationary pressure.

It is evident that the Fed does not intend to take hasty decisions that could undermine progress in reducing inflation. Markets are currently pricing a first rate cut only in July of this year. Keeping rates unchanged for some time will give the regulator not only the opportunity to gather more information but also to assess the real impact of measures already taken.

Recall that at its meeting last month, Fed officials left policy rates unchanged after cutting the policy rate by three-quarters of a percentage point in recent months to support a weakening labor market. Data published since the Fed's last meeting point to a calmer-than-expected inflation picture and some stabilization in the labor market. Recall that in January US employers added 130,000 jobs and the unemployment rate fell to 4.3%.

Barr said, however, that the rise in goods inflation last year had slowed progress toward price stability under the Fed's mandate, increasing the risk of persistently high inflation and requiring officials to remain vigilant. "I would like to see evidence that goods price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable," Barr said.

The Fed official also said that employment conditions were stabilizing but warned that the labor market remained in a fragile balance, with hiring close to zero, making it vulnerable to shocks.

As for a technical outlook for EUR/USD, it suggests that buyers should consider reclaiming 1.1860. That would open the way to test 1.1890. From there, a move to 1.1925 is possible, although advancing beyond that without support from major players would be difficult. The extended target is 1.1957. On a decline, meaningful buying interest is likely near 1.1830. If buyers do not appear there, it would be prudent to wait for a new low at 1.1805 or to open long positions from 1.1770.

As for GBP/USD, buyers of the pound sterling should capture the nearest resistance at 1.3580. Only that will allow them to target 1.3605, above which a breakout would be challenging. The extended target is around 1.3630. If the pair falls, bears will try to seize control at 1.3550. If they succeed, a break of that range would deal a serious blow to bullish positions and could push GBP/USD down to 1.3520 with scope to extend to 1.3495.