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Danske Bank analysts note that the US Fed has left the target range unchanged at 2.25-2.50% and overall there were no major changes to the policy signals.

Key Quotes

“The Fed caught market by surprise by cutting the Interest on Excess Reserves (IOER) by 5bp to 2.35% from 2.45% but Powell stressed during the press conference that this should not be interpreted as the beginning of an easing cycle.”

“The Effective Fed Funds rate (EFFR) has risen to 2.45% since Easter due to a decline in the supply of bank reserves and was thus only 5bp below the top end of the Fed’s target range. The quickest way for the Fed to return the EFFR closer to the mid-point is to cut the IOER. There had been speculation in the market that the Fed could make this move at the June meeting, but the market was not priced for a cut to come at the May meeting – the May Fed Funds futures have traded around 2.42%.”

“We maintain our view that the Fed is on hold for the rest of this year and next.”