The Federal Reserve signaled they will soon lay out a plan to stop letting go of USD 4 trillion in bonds and other assets, but policymakers are still debating how long their newly adopted "patient" stance on U.S. rates policy will last.

For now, policymakers see little risk to leaving interest rates alone while they take time to assess rising risks, including a global slowdown, according to the Fed's minutes from their January 29-30 meeting, released on Wednesday.

Though "several" participants thought a rate increase would be necessary only if inflation unexpectedly surged, "several other participants indicated that, if the economy evolved as they expected, they would view it as appropriate to raise the target range for the federal funds rate later this year."

Those split views suggest that the central bank may not yet have ended its three-year campaign to raise interest rates, but has merely put it on an extended pause. In January the Fed surprised markets by saying it would be patient about adjusting its target range for short-term interest rates, now between 2.25% and 2.5%.

The surprisingly dovish decision came amid mounting risks to the U.S. economy, including slowing Chinese and European economies and waning stimulus from the 2018 U.S. tax cuts.

A raft of Fed policymakers speaking since the Fed's January pledge of patience have insisted the economy is in a good place. But doubts have remained, with traders in U.S. interest-rate futures placing increasing bets that the Fed will need to ease policy by early next year to counter a downturn.

With the U.S. economy facing significant headwinds, the Federal Reserve should align its balance sheet policy with its new "patient" approach to interest rates, San Francisco Federal Reserve Bank President Mary Daly said on Wednesday.

"We don't want the balance sheet to be working at cross purposes with our interest rate policy," Daly said.

The Fed has been shrinking its USD 4 trillion balance sheet by as much as USD 50 billion a month for more than a year, which has been tightening financial conditions even as the central bank last month signaled it is putting its three-year-long campaign to raise interest rates on hold.

Rising downside risks, including slowing global growth, tighter financial conditions and rising uncertainty over trade and other policies, justify that pause in rate hikes, Daly said on Wednesday.

Daly said she supports a halt on further increases until inflation rises sustainably to, or even above, the Fed's 2% target, or if there are signs of overheating in financial markets.

EUR/USD bulls remain in control despite the failure to register a daily close above the 1.1362 Fibo, a 38.2% retrace of the 1.1570 to 1.1234 (January to February) drop, despite the break above. The scope is for an eventual break above the 30-day MA, which is currently at 1.1373. We are looking to get long on near-term dips to 1.1320.

U.S. job growth surged in January, with employers hiring the most workers in 11 months, pointing to underlying strength in the economy despite a darkening outlook that has left the Federal Reserve cautious about further interest rate hikes this year.

The Labor Department's closely watched monthly employment report on Friday showed no "discernible" impact on job growth from a 35-day partial government shutdown. But the longest shutdown in history, which ended a week ago, pushed up the unemployment rate to a seven-month high of 4.0%.

The report came two days after the Fed signaled its three-year interest rate hike campaign might be ending because of rising headwinds to the economy, including financial market volatility and slowing global growth.

Nonfarm payrolls jumped by 304k jobs last month, the largest gain since February 2018, the Labor Department said. Job growth was boosted by hiring at construction sites, retailers and business services as well as at restaurants and hotels.

But data for November and December was revised down to show 70k fewer jobs created than previously reported. The economy needs to create roughly 100k jobs per month to keep up with growth in the working-age population.

The government shutdown saw about 380k workers furloughed but President Donald Trump signed a law guaranteeing these employees back pay. As a result, these workers were included in the January payrolls count in the survey of employers.

The furloughed workers were, however, considered unemployed on "temporary layoff" in the separate household survey from which the jobless rate is calculated. This pushed up the unemployment rate by one-tenth of a percentage point from 3.9% in December.

The shutdown ended last Friday after Trump and Congress agreed to temporary government funding, without money for his U.S.-Mexico border wall.

Average hourly earnings rose three cents, or 0.1% in January after accelerating 0.4% in December. That left the annual increase in wages at 3.2%.

With key data from the Commerce Department, including the fourth-quarter GDP report, still delayed because of the government shutdown, the employment report is the strongest evidence yet that the economy remains on solid ground.

The Fed on Wednesday kept interest rates steady but said it would be patient in raising borrowing costs further this year. The U.S. central bank removed language from its December policy statement that risks to the outlook were "roughly balanced."

Clouds have been gathering over the economic expansion, now in its ninth year and the second longest on record, with business and consumer confidence deteriorating in recent months. Confidence has been eroded by the fight over the government budget and Washington's trade war with Beijing.

Other headwinds to the economy include the fading boost from a tax cut, slowing growth in China and Europe, as well as the risk of a disorderly departure by Britain from the European Union.

Pair set a new short-term high on Thursday but turned lower on the day. The downward move is not continued today. As long as the pair holds above the daily cloud and 10- & 55-day moving averages we believe the rally will resume. Our long remains.

The U.S. Federal Reserve held interest rates steady and, in a formal policy shift, vowed to be patient in further lifting borrowing costs.

Citing rising uncertainty about the U.S. economic outlook, Fed Chairman Jerome Powell said the case for raising rates had "weakened" and, in a statement, the U.S. central bank dropped its earlier expectation for "some further" tightening.

The U.S. central bank said continued economic and job growth was still "the most likely" outcome. But it removed language from its December policy statement that risks to the outlook were "roughly balanced."

The downgrade in the Fed's language around rate increases included a change in its description of economic growth from "strong" to "solid," and it noted that market-based measures of inflation compensation have "moved lower in recent months."

The Fed also shifted to a more dovish stance on its ongoing shedding of assets, saying it was prepared to adjust its plans based on economic and financial developments.

Powell, speaking to reporters after the end of the Fed's latest two-day policy meeting, said the central bank would likely stop trimming its USD 4.1 trillion balance sheet sooner, leaving it with more assets than previously expected.

Taken together, the balance sheet announcement and the shift on rate hikes was meant to convey maximum flexibility from a central bank buffeted in recent weeks by financial market volatility, signs of a global economic slowdown and a partial U.S. government shutdown that clouds the economy.

After the Fed statement the dollar and short-term yields fell as investors gauged an even lower probability of additional rate hikes any time soon.

Market expectations of future rates fell further. Contracts tied to the Fed's policy rate continued to price about a one-in-four chance of a hike in 2019, and contracts maturing in 2020 were signaling a small but rising chance of a rate cut then. is an independent macroeconomic consultancy with thousands of subscribers all over the world. We provide fundamental research to help our clients make better investing decisions. Our subscribers should expect to get access to:

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