The Federal Reserve (Fed) is expected to raise its policy rate by 25 basis points (bps) to the range of 4.75%-5% on Wednesday, 22 March 2023 at 18.00 GMT.
- Federal Reserve expected to hike interest rates by 25 basis points.
- Gold Jackpot Tips: Gold Hit 1000 Points 60200 To 59325
- Summary of Economic Projections, known as the dot plot, will shape how the markets react.
- FOMC will need to find a balance between addressing inflation pressures and banking troubles.
- The US Dollar (USD) suffered heavy losses last week, pressured by falling US Treasury bond yields and the re-pricing of the Fed’s rate outlook following the collapse of the Silicon Valley Bank and Signature Bank.
- As investors move to the sidelines ahead of the Fed’s policy announcements, the US Dollar Index consolidates its losses.
- US stock index futures trade mixed following Tuesday’s risk rally and the 10-year US Treasury bond yield continues to fluctuate above 3.5%.
- The European economic docket will not feature any high-impact data releases on Wednesday, allowing the USD’s reaction to the Fed to drive EUR/USD’s action.
The market positioning suggests that such a decision is already largely priced in, opening the door for a significant reaction to the Fed’s communication, the revised Summary of Economic Projections (SEP) and Chairman Jerome Powell’s press conference regarding future policy actions.
According to the CME Group’s FedWatch Tool, the probability of a 25 bps hike this week stands at around 84%, an almost certain chance. For the March 22nd meeting, the market is currently pricing in only a 16% chance of the Fed leaving its policy rate, the federal funds rate, unchanged at the range of 4.5%-4.75%.
Strategists believe the Fed might sound dovish despite raising interest rates by 25 basis points:
“As for the outlook going forward, the current turmoil shows that the tighter monetary policy is having an impact and is leading to negative consequences in parts of the economy. Accordingly, the Fed is likely to proceed more cautiously and raise interest rates in 25 bp steps to 5.50% (previously, we expected 6.00%).”
About Federal Reserve
The Federal Reserve System (Fed) is the central banking system of the United States and it has two main targets or reasons to be: one is to keep unemployment rate to their lowest possible levels and the other one, to keep inflation around 2%. The Federal Reserve System’s structure is composed of the presidentially appointed Board of Governors, partially presidentially appointed Federal Open Market Committee (FOMC). The FOMC organizes 8 meetings in a year and reviews economic and financial conditions. Also determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.
