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The Fed’s Jefferson is cautiously optimistic about the economy but isn’t tipping anything in terms of rate cuts or hikes.U.S. central bank’s current monetary policy ‘well positioned’ to deal with what likely lies ahead.Future moves to be driven by data and views on outlook.Stance allows ‘leeway’ for supply side of economy to develop.Jefferson says he is ‘cautiously optimistic’ about economic outlook.Job market stabilizing, inflation should moderate.Strong commitment to price stability reduces inflation risks.Tariffs likely represent a one-time shift in price level.It’s possible that stronger productivity could temper inflation pressures.Tariffs were key driver of inflation in 2025, price pressures should ease in 2026.Personal Consumption Expenditures price index likely up by 2.9% in December on year-over-year basis.Jefferson says he supported last year’s interest rate cuts, policy roughly in neutral stance.Jefferson says while upside risks remain, he expects inflation pressures to ease.Job market likely in balance with low-hire, low-fire environment.Jefferson says he expects economy to grow by 2.2% this year.Job market softer on reduced demand, immigration issues.The market is pricing in a 20% chance of a Fed cut in March but that will swing based on Wednesday’s non-farm payrolls report.From the Q&A:I do not want to see any further weakening in the labor marketOnce the market impact of tariffs on goods works through, inflation should subside
This article was written by Adam Button at investinglive.com.
💡 DMK Insight
The Fed’s cautious optimism signals a wait-and-see approach, and here’s why that matters for traders: With no clear direction on rate cuts or hikes, traders should brace for volatility in both equities and forex markets. The Fed’s current stance means that future decisions will hinge on incoming economic data, which could lead to sharp market reactions. For forex traders, this could mean heightened activity around major pairs like EUR/USD and USD/JPY, especially if economic indicators deviate from expectations. Keep an eye on key reports like non-farm payrolls and CPI, as they could shift sentiment quickly. On the flip side, while the Fed’s leeway suggests stability, it also raises the risk of market overreactions to minor data changes. If traders misinterpret the Fed’s signals, we could see erratic price movements. Watch for technical levels around recent highs and lows in the S&P 500 and major currency pairs, as these could serve as pivotal points for breakout or reversal strategies. The next few weeks will be crucial, so stay alert for data releases that could sway the Fed’s outlook.
📮 Takeaway
Monitor upcoming economic data releases closely, as they could trigger significant volatility in forex and equity markets, particularly around key levels.
