Fed: What do analysts expect after Wednesday's unexpected hawkish meeting?

Wednesday's Fed meeting disappointed the market, in the sense that Powell was less dovish than the market had anticipated, which weighed heavily on the EUR/USD, which marked new annual lows following the event.

What should we read from Powell's comments?

Powell said the Fed was not engaging in a long cycle of rate cuts, as would be the case during an ordinary recession. He also described a transition in Fed policy that began after the last rate hike late last year, then took a break, and moved to a quarter point rate cut. The rate range for federal funds is now 2 to 2.25%.

What do analysts think?

According to a Jefferies financial economist, Powell did not make a convincing case for spending cuts, he simply described trade issues that were previously "boiling" as now "simmering".

The latter added that "His opinion isn't clear. The policy statement was ambiguous and, frankly, he did nothing to clarify it. He doesn't seem confident. I think they're concerned about the downside risks. Since they have already taken the measure to reduce rates, they will probably take another one, but his comments suggest that this is not the beginning of a major easing cycle and that is what has shaken the market."

Mr. Jeffery of BMO said that federal funds futures contracts now reflect a slower rate cut by the Fed. In federal funds futures contracts, there is a 50% chance of getting a 25-basis point reduction in September, but a 99% chance of getting the next quarter point by November.

President Trump later mentioned that he was disappointed with the rate cut and that Powell "let us down once again", but he added that at least the Fed had ended its quantitative tightening program.

The reaction of the bond market has been a confusing one and strategists are waiting for Fed officials to clarify the message in the coming days.

"It was a very confusing message, and I don't think Powell gave a clear direction on the short-term trajectory of further Fed easing, which is why the market reacted negatively," according to a Merrill Lynch analyst.