Central Banks Hold Steady: The Fed Cuts 25 bps and Shifts to Wait-and-See
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Market Overview
Central banks are largely keeping a careful and steady approach. The main goal is unchanged: bring inflation closer to target without causing unnecessary harm to jobs. Even when some central banks cut rates or pause, the overall direction has not shifted much. Policymakers are trying to avoid moving too fast in either direction.
In the United States, the Federal Reserve cut rates by 25 basis points, but the decision was not fully united. The vote was 9–3, and two officials preferred no cut at all. This tells markets that the Fed is not rushing into a long series of cuts. Instead, it looks more like a cautious adjustment and a signal that the Fed is taking time to evaluate what happens next.
Fundamental Factors
One reason the message felt cautious is that the Fed’s longer-term projections did not change much. The dot plot for 2026 stayed unchanged, which suggests the Fed has not changed its view on where rates may settle over time. Markets may still debate how many cuts could come in the near term, but the Fed did not communicate a new long-term path.
Chair Powell also highlighted the key risk trade-off. He pointed to downside risks to employment and upside risks to inflation, making it clear that both sides matter. However, his comments suggest the labor market could play the bigger role going forward. In practice, markets may price in more cuts if job data weakens clearly, even if inflation does not fall as quickly as hoped.
The Fed also plans to start $40 billion in Treasury bill purchases from December 12 as part of balance sheet management. Officials stressed that this is not quantitative easing, likely to avoid giving the impression that the Fed is adding broad stimulus.
Overall, the Fed seems to have moved from “risk management” cuts toward a wait-and-see stance. Attention now turns to important data before January 28, including several jobs and CPI reports. With only a few remaining meetings, uncertainty around timing and pace remains.
Technical Analysis
Following the recent FOMC announcement, the Dollar Index experienced a significant decline, marked by the formation of a large bearish engulfing candle at the weekly open price near 98.84. This level aligns with a prior change of character, suggesting it may now act as a resistance zone if retested. The gap created during this movement failed to hold, further reinforcing the bearish sentiment. On a broader scale, both the weekly and monthly candles exhibit bearish characteristics, indicating sustained downward pressure. However, the daily candle appears bullish, potentially attempting to fill the gap left by the sharp bearish move. This bullish daily candle emerged after an order block was identified near the 98.45 level, which also aligns with a similar order block on the H4 timeframe. Currently, the market is testing a resistance level that was previously a support, signaling a bearish shift in market structure. If bearish engulfing patterns or order blocks emerge at this resistance, it could confirm the bearish outlook, framing the current bullish price action as a potential dead cat bounce.
Conclusion
The bigger picture is simple: central banks are not making dramatic changes right now. They are staying cautious, watching inflation and jobs closely, and keeping flexibility. For markets, the key factor is likely the labor market—clear weakness there could push expectations toward more cuts, while steady jobs may support a slower, more careful path.