As Members of the FOMC Raise Interest Rates Forecast, Dollar Rises

The dollar has risen after the Federal Reserve boosted its median federal funds’ rate prediction for 2023 from 0.1 percent to 0.6 percent. That is, by the end of 2023, two rate hikes are possible. In addition, seven FOMC members expect one or more rate hikes in 2022, compared to four in March. By 2023, 13 members projected at least one raise, up from just seven in March.

The Federal Open Market Committee (FOMC) stated on Wednesday that the benchmark interest rate, or target range for federal funds, will remain unchanged at 0% -0.25%, as expected. Despite the fact that the Fed kept its policy settings intact, the hawkish move in the Summary of Economic Forecasts appears to be helping the dollar. At the time of writing, the US Dollar Index was trading at 90.95, up 0.48 percent for the day.

Since the FOMC pronouncement, the USD/JPY has gained more than sixty pips. It recently hit a high of 110.49, it’s best since early April. The pair was buoyed by a stronger US currency and higher US rates. In addition, the members raised their inflation predictions. These moves raised US yields and the dollar in general. The bulls are being beaten down by the bears as the US Federal Reserve becomes more hawkish as it monitors inflation threats that may turn out to be bigger and longer-lasting than predicted.

GBP/USD is currently trading at 1.4012, barely off its day’s lows of 1.4011 after sliding from a high of 1.4132. Since the Fed’s statements, the pound has lost 0.66 percent against the US dollar.

Powell Statement: FOMC Kept Policy Unchanged

Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, spoke on the policy outlook after the Federal Open Market Committee (FOMC) decided to leave the policy rate unchanged within the target range of 0-0.25 percent.

“Will continue to buy at least $80 bln/month of treasuries and $40 bln/month of mortgage-backed securities until ‘substantial further progress’ made on maximum employment, price stability goals.” “Will maintain current fed funds rate until the labor market has reached maximum employment and inflation has risen to 2% and is on track to moderately exceed that for some time.”

“Indicators of economic activity and employment have strengthened amid progress on COVID-19 vaccinations.” “Will maintain the accommodative policy until inflation runs moderately above 2% for some time, so that inflation averages 2% over time and longer-term inflation expectations remain well-anchored at 2%.”

“Sectors most adversely affected by pandemic remain weak but have shown improvement.” “Path of the economy depends significantly on the course of the virus.” “Vote in favor of policy was unanimous.” “Temporary US dollar swap lines extended with 9 central banks through Dec. 31.”