The new dot plots also confirm my USD bias – the Board has a consensus for the December meeting – meaning come December we will see another 25 basis point rate rise the 9th of this current cycle with plenty more to come. 2019 is slight different there is now a perfectly even split between a possible 2, 3 or 4 25bp hikes. However all plots moved slightly higher and that is why, my opinion has always been that 4 is the most likely outcome. We also got the first view of the Board’s projections for 2021, and saw an increase in the ‘longer run estimate’ – again a hawkish view and a USD strength view.
Fed Interest Rate Decision
FED Latest News
FED Latest Analysis
SEPTEMBER FED DECISION REVIEW
The Federal Reserve hiked rates as expected and pointed to a further rate hike in December; however, expectations for rates in 2019 remained unchanged. On the growth front, the 2018 GDP projection was raised from 2.8% to 3.1%, the 2019 expectation for GDP was raised a touch to 2.5% from 2.4%. However, this wasn’t enough to boost the dollar, which is currently down against its G10 peers, although no fresh daily lows have been reached.
The Federal Reserve raised interest rates for the third time this year by 25bp. The U.S. dollar appreciated against all of the major currencies after the rate decision except for the Japanese Yen and Swiss Franc. The inconsistency in the dollar's performance is a sign of risk aversion. The Dow dropped more than 100 points today while 10-year yields fell nearly 5bp.
Fed is on autopilot and the destination is neutral The Fed meeting turned out pretty much in line with what we wrote in our FOMC preview: Destination neutral , as the Fed raised the target range by 25bp to 2.00-2.25% and did not send any new important signals to the markets, supporting our view that the Fed is on autopilot and neutral is the destination.
AUGUST FED DECISION REVIEW
The FOMC unanimously decided to leave interest rates unchanged at a range between 1.75% to 2.00%. There were no surprises there. The changes were also minimal, but still worth mentioning. The description of the economy changed from "solid" in the previous statement to "strong" now. This is a nod to the recent GDP growth data that showed an annualized growth rate of 4.1% in Q2 2018, the best in four years.
After effecting a rate hike in June, the Federal Open Market Committee (FOMC) of the Federal Reserve (FED) maintained rates between 1.75 percent and 2 percent at its Aug. 1 meeting. “The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation,” the release read.
There was little doubt in the market's collective mind that the Federal Reserve, which hiked rates in July, would stand pat today. It did not disappoint. The statement itself was almost identical. Growth was said to be "strong" instead of "solid," for example, a nuance to be lost on most observers. It recognized that the unemployment rate stabilized after fallin
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 (FED) 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.