Fed focused on “signal to noise” ratio
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What is the Fed’s “signal‑to‑noise” dilemma and why does it matter?
Well, if you are a hi-fi geek, you'll know all about the signal to noise ratio of old, which is how much the clarity of the sound is ruined by extraneous noise like tape hiss. Remember that thing? Well now the Fed has the same problem. There's so much noise, they're looking for the signal through it that shows the real impact on the economy and prices and unemployment. Uh that is a line Jerome Powell has used a several times during the Fed press conference today. It's Thursday, it's the twentieth of March twenty twenty five. It's the morning call from Nab. Good morning. So with the Fed meeting out of the way, the US dollar is around a hundred and three point six on the DX Y. It did get up to one hundred and three point nine, but it fell fairly quickly after the Fed.
Still naught point four percent up on the day though. The Aussie is down naught point one percent to sixty three and a half US cents, the euro down naught point three percent, the yen is up a quarter percent, the pound only slightly in the green. US stocks are higher, particularly tech. So the Nasdaq up one point three percent at the close up one point 1% for the S P, 0.9% for the Dow, 1.6% for the Russell 2000, which is a complete switch around from yesterday, and that applies to Europe too, where today the DAX is down 0.4%, although the CAT Carrant is up 0.7%, and 0.4% for the Eurostocks fifty. Not much movement on the FTSE one hundred. And if you look at it for the day, there hasn't been massive moves in bond yields.
So ten year treasuries are now down just two basis points on. On yesterday, uh just one basis point for ten year yields across much of Europe. Aussie ten years were up two basis points yesterday to four point four two percent. Now on futures they are four basis points higher. And oil is higher as well, not point four percent added to Brent and WTI, Brent above seventy eighty a barrel now, and Comics Gold up again, another third of one percent to more than three thousand and fifty an ounce. And guess what? That is another record Almost forty percent year to date. So no move from the Fed. They have slowed their quantitative tightening and they have changed forecasts. Growth has slowed, inflation has risen, and so is unemployment.
Uh they say there are risks to both sides of its dual mandate, uh which obviously is to maximize employment and uh stabilize prices. Uh they're saying it's because of the uncertainty.
How did the Fed’s policy decision affect the US dollar and global markets?
But the dot plot hasn't really moved at all. Now's Gavin Friend is here from London. So what do you make of all that, Gavin? Yeah,
morning Phil. Um I'm gonna I'm gonna uh call you out on the moves in in in yields actually. They have moved um quite a bit actually in light of the state. Yeah, but they moved, didn't they? And then they moved back. Only
a couple of points.
Broadly, markets got what they expected, as you say, lower economic growth forecasts, higher inflation forecasts, a median dot um that was unchanged for fifty basis points of cuts for the remainder of this year. And in the statement and acknowledgement that uncertainty around the economic outlook has increased, obviously, you know, we we all expect that. In his press conference, Chair Powell repeated the Fed uh doesn't need to be in a hurry to adjust policy. That's a well-worn line. Um yields actually, you know, in immediately following the move uh came came off and they've continued to come off. So as we Recalled this, we're uh still listening to the press conference as it's going on with Chair Powell and yields in the two the two-year yields are down ten basis points.
The tens are down seven basis points, the dollar is increasing its slide down.4.5%. Not a huge amount, but it's it's starting to move that way. Arguably, the reason why markets have reacted this way, so higher stocks, lower yields. Uh lower dollar is because firstly, the pervading narrative out there is uncertainty, anxiety, fear about US economic growth. Uh, and the Fed acknowledges that. Secondly, I think if you look at the new economic projections that we got in this, that we get every quarter, we got that was one of those those meetings, uh, growth for 2025 is cut from 2.1 to 1.7.
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Chapters
5 chapters
1
What is the Fed’s “signal‑to‑noise” dilemma and why does it matter?
0:02–2:14
2
How did the Fed’s policy decision affect the US dollar and global markets?
2:14–5:09
3
What did Jerome Powell say about uncertainty and the Fed’s wait‑and‑see stance?
5:09–8:14
4
Why did the Fed’s dot‑plot change so little despite new growth forecasts?
8:14–10:43
5
How are the revised US growth, inflation and unemployment forecasts shaping policy?
10:43–14:19