Federal Reserve (Fed) Chair Jerome Powell is set to deliver a speech on economic outlook and monetary policy at the National Association for Business Economics (NABE) Annual Meeting in Philadelphia on Tuesday. With the US government shutdown delaying key economic data releases, Powell’s remarks could have a notable impact on the US Dollar (USD) in the near term.
Market expectations: rate cuts largely priced in
Despite mixed recent commentary from Fed officials, the CME FedWatch Tool shows that markets are fully pricing in a 25-basis-point (bps) rate cut in October and see a nearly 90% probability of another 25 bps reduction in December.
Fed Governor Michael Barr expressed skepticism that the Fed can overlook tariff-driven inflation, citing significant risks to the inflation target, although he noted some mitigating factors. Similarly, St. Louis Fed President Alberto Musalem highlighted challenges in responding to short-term labor market fluctuations if inflation expectations become unanchored.
On the dovish side, San Francisco Fed President Mary Daly said inflation has moderated more than feared, and labor market softening could be concerning if risks are not managed. Meanwhile, Philadelphia Fed President Anna Paulson noted in her first public speech that tariffs are unlikely to trigger sustained inflation and highlighted rising labor market risks.
Potential usd reaction
If Powell signals that further policy easing may be needed in response to a weakening labor market, the USD could face downward pressure, although market positioning suggests limited room for further declines given that the December rate cut is already largely priced in.
Conversely, a cautious tone on consecutive rate cuts — citing uncertainty from missing inflation and employment data or renewed US-China trade tensions — could allow the USD to outperform its rivals in the near term.
