Fed reduces economic and rate projections for 2019 and 2020. Dollar drops, equities recover then fall, interest rates decline. Powell lauds economy while Fed rate policy pauses.
Fed Interest Rate Decision
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March FED DECISION review
As we noted in yesterday’s FOMC Preview report, the US central bank was never going to make any immediate changes to policy, leaving traders to read Powell and Company’s tea leaves for implications about future tweaks. As it turns out, the tea leaves were clear: The Fed has undergone a major dovish shift.
The Federal Reserve made five dovish changes that sent the US Dollar down: 1) No hikes in 2019: The dot-plot is first and foremost. The Fed slashed its forecasts for raising rates from two to none at all for 2019. A single hike is due for 2020, which is still far in the future. This significant downgrade is the primary driver.
January FED DECISION review
The Federal Reserve made a significant dovish shift in its statement. The US Dollar dropped for five main reasons. Given the magnitude of the change, there is room for further pressure on the US Dollar. The Fed made a significant shift in interest rates and moved from hawkish to neutral, preaching patience on the next moves. This is not a slowdown but a total halt. There are now no rate hikes on the horizon. The Fed aligned itself with markets.
Following its meeting today, the FOMC released a statement that provided some additional clarity on the outlook for the balance sheet. While some answers are emerging, others are still awaiting further guidance. One question answered, while others remain...
The Fed abandoned any hints of a hawkish bias and shifted to a neutral, 'patient' approach. The US dollar sank on the FOMC while the Australian dollar was the top performer on the day. The China PMIs are up next with Canadian GDP due later. A new Premium trade has been issued with 2 charts and 5 supporting points.
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.