The Fed Kicks Off Rate Hikes Finally

The Wait Is Over

After much anticipation, the Federal Reserve announced a quarter-point interest rate hike on Wednesday in an effort to curb the rising inflation. This marks its first interest rate increase since 2018.

The central bank predicted six more rate hikes in 2022 and three more next year, beating the market forecast of three hikes per year. Dollar fell and gold steadied on the announcement.

Key Takeaways From FOMC

Fed policymakers voted 8-1 to raise the federal fund rate from 0.25% to between 0.25% and 0.5%. Fed Chair Jerome Powell said that the central bank could kick off reducing its nearly $9 trillion balance sheet at its next FOMC meeting in May. Stay tuned to the latest financial news.

The rising inflation continues to be the Fed’s main concern, and the Fed is not too optimistic about ending inflation any sooner. Notably, the consumer price index, a key inflation gauge, showed that food and energy costs hit a 40-year high in February. Considering this, Powell expected the US inflation only to cool down slightly this year. He projected a 4.1% inflation by the end of this year and 2.6% in 2023.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labour market to remain strong,” the Fed said in a statement.

Additionally, Fed cited the invasion of Ukraine by Russia as a potential hurdle to the US economy.

“The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity,” the Fed stated.

The only comforting news for the Fed is that the labour market in the country has generally improved, as there were more jobs and the unemployment rate slipped substantially.

Looking forward, the central bank said it will continue monitoring key statistics, including readings on public health, labour market conditions, inflation pressures and inflation expectations, and financial and international developments.

“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the Fed concluded.

Market Reaction

Fed’s speech was less hawkish as expected, weakening the US dollar. The dollar index retreated to 98.36. As new data showed that Australia’s employment has improved, AUD/USD gained 98 pips to 0.7294. Receive latest updates on the popular FX pairs

Spot gold dipped as much as 1.2% but later regained its ground and ended the day with a 0.4% increase to $1,925 an ounce.

For a look at all of today’s economic events, check out our economic calendar.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.