Zoom out

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By Guest Blogger Scott Booth

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Investment managers tend to pay close attention to what Central banks are doing.

Yawn.

Nothing to see here.

Both the Bank of Canada (BoC) and the Federal Reserve (the Fed) kept their respective policy rates yesterday. No one was surprised.

South of the border, the decision to hold the benchmark federal-funds rate steady in a range between 3.5% and 3.75%.

As things stand, the United States has one of the highest policy rates in the developed world, illustrated in the chart below.

Central Bank Policy Rates

Source: Bloomberg, CME Group

The general trend with central banks around the globe (ex-Japan) has been rate cuts and holds.

American inflation is still a little hot compared to Fed targets (this reality is pretty common in other nations too).

The U.S. job market is plodding along in “No-Hire, No-Fire” territory.

Economically speaking, there is nothing urgently pushing the Fed to either reduce or raise interest rates…although there seems to be some pressure to cut from 45/47.

Most global central banks appear to be policy neutral at this point…neither restrictive, nor pushing expansion.

With this latest rate-decision in the rear-view, there are only two more FOMC (Federal Open Market Committee) meetings remaining before J-Pow’s term as chairman of the Fed’s governing board expires.

It seems the Orange Guy has whittled the search for his replacement down to four finalists: Christopher Waller, a current Fed governor, appointed by T1.0 back in 2020; Former Fed Governor Kevin Warsh; Rick Rieder from BlackRock; and Kevin Hassett, who currently sits as the director of the White House National Economic Council.

When DJT gets his guy in there, aggressive rate cuts are coming right?

Well…not so much.

The Fed’s Rate policy is decided by committee. One sycophant can’t just make the boss’s wishes come to fruition.

Whomever gets the seat at the soon-to-be-open helm of the Fed will need to convince the other voting members at the FOMC to do so.

The last vote was 10-2 to hold rates.

There are voices in the room that remember keeping easy-money policies in place for too long coming out of covid and letting the inflation genie out of the bottle.

The powers that be on the FOMC are probably leaning too hard the other way and keeping a relatively restrictive level of interest rates, weary of the past and uncertain about the impact of the current administrations fiscal and trade policies.

One shouldn’t expect a massive shift in rates when the new chair gets appointed.

The U.S. President wants rates to go down and, As Garth quoted him yesterday, he feels “the dollar’s doing great.”

The chart below shows how the US$ is performing against a basket of global currencies. It just hit lows for the last year.

US Dollar Index (DXY) – 1 Year

Source: FactSet, Turner Investments

Looks ominous right? Demise of US$ dominance pending? End of the hegemony?

Should one be looking to buy precious metals or canned goods and ammo?

US Dollar Index (DXY) – 10 Year

Source: FactSet, Turner Investments

In reality, the US Dollar Index sits near the middle of its longer term trading range.

The Yankee buck has enjoyed exceptional strength in the past half-decade and is normalizing here.

There are numerous factors that have contributed to the Big Dollar’s recent decline…which Garth eloquently articulated in yesterday’s post… but when one looks at currency reserves, foreign exchange trading volumes, trade settlement and a host of other metrices…the Greenback is still King.

Continued near-term dollar weakness seems a real possibility…but its status as the world’s reserve currency is not in doubt.

Sometimes it’s easy to reinforce a narrative with hard data. Whenever someone shows you a convincing looking chart to drive home a point…ask them to zoom out.

Scott Booth, CFA, is a seasoned financial advisor and licensed portfolio manager. Over the past 18 years he has worked in the capital markets as an analyst, trader and advisor with major banks and now with Turner Investments.

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Source: https://www.greaterfool.ca/2026/01/29/zoom-out/