The Federal Reserve will release its Meeting Minutes on Wednesday, May 23rd. The release documents the May 2nd decision in which the Fed...
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MAY FED DECISION REVIEW
The Federal Reserve left the interest rate unchanged at 1.50% to 1.75% as widely expected. Markets took their time with reacting to the statement before the US Dollar dropped. All in all, the combination of some cautious words and profit-taking weighed on the US Dollar. What is next? The US economy continues outperforming other major economies on growth and inflation. A resumption of the rises may come after the dust from the May FOMC settles.
From a fundamental take on today's market, it was all about the Fed, if only for an hourly stick. Markets waiting in anticipation of a hawkish hold, signalling June as a dead cert. The dollar has been moving up the early 90's with expectations that the Fed will be hiking at least two more times in 2018, with the possibility of a third hike before the year is out
Widely anticipated, the Federal Open Market Committee (FOMC) left the federal funds target rate range [1.50 percent-1.75 percent] unchanged at the conclusion of this two-day meeting. With no rate hike in the cards, focus was squarely on the policy statement and officials’ updated assessment of the U.S. economy and whether any signals were being sent as to a change in the anticipated pace of interest rate tightening. Today’s statement provided no such evidence.
MARCH FED MEETING REVIEW
The Fed raised the benchmark interest rate by one-quarter of a point to a range of 1.5 percent to 1.75 percent. The discount rate was raised from 2 percent to 2.25 percent. The Fed sees three rate increases this year, three next year and two in 2020. Fed officials project 2-percent GDP growth In 2020.
The FOMC decided to raise the interest rate to a maximum of 1.75% as widely expected. In the closely-watched projection of interest rates, they left the projection for three rate hikes unchanged for 2018. They did upgrade the forecasts for 2019 a rate of 2.9% against 2.7% beforehand and in 2019 from 3.1% to 3.4%. In the long-term, the upgrade is minimal: from 2.8% to 2.9%.
Assumptions are dangerous things. The Fed is now making quite a few. In the fixed income world, the 10-year rose to a one-month high at 2.936% and settled at 2.901%, levels that don't pass the "So What?" test. So far today the 10-year is back down to 2.848%. If the bond market really believed the Fed's projections for next year, the yield should have sliced through 3% and stayed up there.
What's important about Federal Reserve’s monetary policy meeting?
With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks.
In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions.
A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency.
If rates remain unchanged, attention and also main news and analysis turn to the tone of the FOMC (Federal Open Market Committee) statement, and whether the tone is hawkish, or dovish over future developments of inflation.
How to trade the event?
- Do not rely on the Fed to determine the direction of the dollar in the coming months.
- The dollar tends to follow its predominant trend when the Fed starts to hike rates.
- There is no direct link between the Fed hiking rates and the usd falling. When a weak usd has coincided with a Fed hiking cycle, it has been falling for some time.
- Due to this, we may see a muted reaction to a potential Fed rate hike.
FED educational resources
What is the Fed?
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.
WHO IS FOMC'S CHAIRMAN?
Jerome Powell took office as chairman of the Board of Governors of the Federal Reserve System in February 2018, for a four-year term ending in February 2022. His term as a member of the Board of Governors will expire January 31, 2028. Born in Washington D.C., he received a bachelor’s degree in politics from Princeton University in 1975 and earned a law degree from Georgetown University in 1979. Powell served as an assistant secretary and as undersecretary of the Treasury under President George H.W. Bush. He also worked as a lawyer and investment banker in New York City. From 1997 through 2005, Powell was a partner at The Carlyle Group.
The World Interest Rates Table
The World Interest Rates Table reflects the current interest rates of the main countries around the world, set by their respective Central Banks. Rates typically reflect the health of individual economies, as in a perfect scenario, Central Banks tend to rise rates when the economy is growing and therefore instigate inflation.