Fed Raises Interest Rate By 75 Basis Points

Key Insights

• The Fed raised the rate to 4.0%, in line with the analyst consensus. 
• The Fed noted that the job market was healthy while inflation remained elevated. 
• The central bank anticipates that ongoing increases in the target range will be necessary to push inflation back to the 2% level. 

No Major Surprises In The FOMC Statement

The Fed has just raised the interest rate by 75 basis points from 3.25% to 4.0%, in line with the analyst consensus.

In its statement, the Fed noted that recent indicators pointed to modest growth in spending and production. The Fed “anticipates that ongoing increases in the target range will be appropirate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

Importantly, the Fed will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. The recent developments in debt markets did not change Fed’s plans.

Currently, the yield of 10-year Treasuries has settled near the 4.00% level, while the yield of 2-year Treasuries is located near 4.45%.

The Fed noted that it would take into account “the lags with which monetary policy affects economic activity and inflation”. This is a rather dovish statement as it shows that the Fed may reduce the pace of its rate hikes to monitor the impact of the previous rate hikes.

S&P 500 Moves Higher While Dollar Drops

S&P 500 gained upside momentum after the release of the FOMC statement and made an attempt to settle above the 3885 level. There was nothing surprising in the statement. S&P 500 will remain volatile ahead of the Fed Press Conference, which starts soon.

Meanwhile, the U.S. dollar found itself under significant pressure against a broad basket of currencies. The U.S. Dollar Index moved towards the 50 EMA at 110.70. A move below the 50 EMA will signal that traders believe that the Fed will be less hawkish than previously expected. Weaker dollar should provide additional support to stocks.

As noted above, Fed Chair Jerome Powell will have a chance to explain his views during the press conference. His speech will have a significant impact on markets, so traders should be prepared for fast moves.

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