After the conclusion of the May policy meeting, most FED members leaned towards only one interest rate cut by the end of this year. This indicates a cautious approach, avoiding hasty policy easing, even as data showed a significant cooling of inflation last month. The U.S. central bank also announced that it would maintain the policy rate at 5,25% - 5,5%, which has been in place since July 2023. Out of 19 members of the FED's policy-setting committee, 15 members supported a rate cut this year with a split between one or two cuts. FED Chairman Jerome Powell stated that after rising again in the first quarter, recent inflation indicators have shown improvement. “These numbers show inflation issues beginning to move in the right direction… but the FED does not want to be overly swayed by any single data point.” To cut interest rates, the FED needs more positive inflation reports in the coming months. The FED's latest decision came just hours after the U.S. Department of Labor released May CPI data showing a continued cooling, with an increase of +3,3% year-on-year, down from +3,4% in April. The market now expects that barring any unexpected changes in inflation and the labor market, the FED is likely to cut interest rates only in December this year, after the U.S. Presidential election results.
The USD Index fluctuated significantly last night, at one point recording a nearly 1% drop after the U.S. May inflation report showed a cooling trend, before recovering and therefore only down 0,5% by the end of the session with expectations that the FED will only make one rate cut this year. This FED decision will limit the decline of the USD considerably. The USD/VND interbank exchange rate is expected to remain around range of 25.420 - 25.450 today as the market needs more time to assess the impacts of the U.S. central bank's decision.
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