FOMC hikes rates 25bps as expected, but statement says more hikes to come!
The FOMC today hiked rates 25bps to 0.50% , as expected, by a vote of 8-1. St Louis Fed President Bullard was the sole dissenter and voted for a 50bps hike. However, the FOMC statement noted that ongoing increases are appropriate. It expects to begin reducing the size of the balance sheet at “an upcoming meeting’. Fed Chairman Powell said at the press conference that the FOMC has a plan to raise rates steadily over the course of the year and run off the balance sheet. This is hawkish!
Everything you need to know about the Federal Reserve
The FOMC also noted that inflation remains higher than targeted due to elevated prices and supply chain issues. Powell said that the Russia/Ukraine war added to inflation by raising energy costs. He added that inflation will take longer to return to normal than initial expected and that risks are to upside. Powell also said that the committee expects inflation to remain high until middle of next year, turn lower, then turn sharply lower. As a result, the FOMC increased the median forecast for inflation substantially from December. They now see inflation at year end near 4.3%, as opposed to 2.8% previously! The committee also cut its forecast on growth for 2022 to 2.8% from 4.0% in December. Despite the higher inflation and lower growth forecasts, Powell said he does not see a recession over the next year.
The median forecast for rates shows 1.9% at the end of 2022 and 2.8% at the end of 2023. This would indicate there may be as many as 7 rate hikes this year, which indeed makes this hawkish. Note that these are median expectations, meaning some saw inflation even higher at year end!
EUR/USD was extremely volatile surround the release of the statement and the press conference, in what may have been a “Sell the statement, buy the press conference”. EUR/USD made a high just above 1.1000 and moved lower towards 1.0950 into the press conference. However, prices then reversed and moved higher, back above the statement high as Powell was speaking.
Source: Tradingview, Stone X
Trade EUR/USD now: Login or Open a new account!
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
On a daily timeframe, EUR/USD had been moving lower in an orderly channel. During the month of February, price broke out of the top side of the channel and failed, only to move lower and test the bottom of the channel. However, price was halted at the 161.8% Fibonacci extension from the low of January 28th to the highs of February 10th, near 1.0920. Expectations are that the trend will continue, however there is room within the channel to move higher first. Resistance is at the highs of March 10th near 1.1121 (also previous lows), then the top, downward sloping channel line near 1.1210. Support is at the bottom trendline of the channel near 1.0890, then the lows of March 7th at 1.0806.
Source: Tradingview, Stone X
The Fed is concerned about inflation, as it now expects 4.3% by the end of the year. As a result, the dot plot shows roughly 7 rate hikes baked in for this year, in addition to unwinding of its balance sheet. This could be viewed as a hawkish meeting. Watch the inflation data moving forward to see if the FOMC will feel it’s necessary to hike by 50 bps at one of the upcoming meetings!
Learn more about forex trading opportunities.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
For further details see our full non-independent research disclaimer and quarterly summary.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.
City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.
City Index is a trademark of StoneX Financial Ltd.
The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.
© City Index 2024