Yesterday, attention was drawn to an interview with Loretta Hammack, President of the Federal Reserve Bank of Cleveland. She said she continues to closely monitor inflation and that policymakers should be cautious about cutting interest rates to avoid overheating the economy. This came as a rather surprising comment—especially following last week's Fed rate cut.
Hammack noted that despite the recent slowdown in job growth, there are signs that the labor market remains stable, including low levels of layoffs and unemployment. Inflation, meanwhile, has been above the Fed's 2% target for more than four years and may not reach the central bank's goal for another couple of years, she added.
Her comments struck a dissonant note against the general trend toward monetary easing, sparking lively debate among analysts and investors. The market seemingly interpreted the Cleveland Fed chief's remarks as a signal that the pace of further rate cuts could slow. This, in turn, triggered some volatility in equity markets and provided temporary support for the US dollar.
"I think we should be very cautious about lifting monetary policy restraints," Hammack said Monday during a moderated discussion at the Federal Reserve Bank of Cleveland. "I am concerned that if we remove these restraints, the economy could overheat again."
The most important takeaway from Hammack's statement is her focus on persistent inflationary pressures. Amid the ongoing tariff war and unpredictable global economic environment, controlling inflation remains a top priority for the Fed. On the one hand, rate cuts stimulate economic growth, but on the other, they risk accelerating inflation, which could later force policy tightening. Striking the right balance between these two goals remains the Fed's key challenge.
Currently, Fed leadership is actively discussing how much further to reduce borrowing costs this year after last week's quarter-point rate cut, the first since December. Some policymakers are increasingly concerned about rising risks to the labor market, while others remain primarily focused on the possibility that tariffs and other measures could drive inflation above the target.
Hammack said policy is now "very moderately" restrictive after last week's cut, leaving rates close to neutral, a level that neither stimulates nor restrains growth. "I believe the labor market is still in fairly good shape, and I am very concerned about the inflation situation," she said.
As noted above, the currency market did not react significantly to Hammack's statements.
EUR/USD technical outlook: At present, buyers need to focus on reclaiming the 1.1820 level. Only then will a test of 1.1850 become possible. From there, the pair could move toward 1.1882, but doing so without support from large players will be difficult. The ultimate target is the 1.1920 high. In case of a decline, I expect serious buying interest to emerge around 1.1785. If absent, it would be better to wait for a test of the 1.1760 low or consider long positions from 1.1725.
GBP/USD technical outlook: For pound buyers, the key is breaking the nearest resistance at 1.3540. Only this will allow targeting 1.3565, above which progress will be difficult. The ultimate target is the 1.3605 level. If the pair falls, bears will attempt to take control of the 1.3490 level. A breakout there would deal a serious blow to bullish positions and push GBP/USD down to 1.3455, with the prospect of extending to 1.3415.
