UST yields rose with short-end bonds underperforming after FOMC decision. There was a dovish tilt at the statement but not in Powell’s comments, OCBC's FX analysts Frances Cheung and Christopher Wong note.

FOMC statement turns dovish, but chair pushes back

"The FOMC statement downgraded its economic assessment to “recent indicator suggest that growth of economic activity moderated in the first half of the year”, from 'has continued to expand at a solid pace'; the decision was not unanimous, with two Committee members – Waller and Bowman – voting for a 25bp cut, which was not entirely surprising though. Powell during the press conference however continued to push back on the timing of the next rate cuts – he simply maintained his wait-and-see stance over the months, but as time passes, maintaining such stance is seen as pointing to further delays in rate cut and hence hawkish by the market."

"Powell is not committed to a rate cut at September meeting – one would not have expected a central banker to do so, but he does not rule it out either. The Fed Chair himself noted there are several economic releases before September FOMC meeting, including two months of data on employment and inflation. And he said, 'we’ll be taking that information into consideration and all the other information we get as we make our decision at the September meeting'. He added that if the risks to the two mandates were more in balance, that would imply that policy shouldn’t be restrictive – hence the bar for a rate cut is not necessarily high."

"The key takeaway is monetary policy decision remains highly data dependent. Our base case therefore remains for 75bps of cuts before year end for now, which has been premised on the assessment that the labour market has been cooling while rates are at restrictive levels. Between now and end-2026, we expect four 25bp Fed funds rate cuts which points to a terminal rate of 3.25-3.50%. The risk is a further delay in some of our expected rate cuts into 2026 and we will review this outlook upon additional data releases."