FOMC Interest rate decision (FED) | News & Analysis

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Fed Analysis: Dollar does not like the dot-plot mini-upgrade

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%.

Fed funds at 2.1% by the end of this year

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.


Powell's Nirvana smells like rate hike spirit

The US Federal Reserve fresh chairman Jerome Powell is an experienced central banker with a long professional career in public posts that make him an experienced speaker and skillful verbal equilibrist when it comes to public speeches. This turned increasingly true during his first Congressional hearing when Congressmen grill the central banker in public.

Powell’s hawkish hint hurts stocks, boosts buck

Investors were on edge ahead of Jerome Powell’s highly-anticipated Humphrey-Hawkins testimony to the House Financial Services Committee. While Powell was seen as the status quo candidate to replace outgoing Fed chair Yellen, some traders still harbored some uncertainty about his qualifications, which include extensive policymaking experience, but less formal experience (including the conspicuous lack of a doctorate degree) than we’ve come to expect from the head of a central bank.

Powell says ‘personal outlook has strengthened

Our interpretation of Fed Chair Powell’s testimony before the House of Representatives’ Financial Services Committee is that he was being slightly hawkish, especially during the following Q&A session (no big changes in the prepared speech). Being asked about what would cause the Fed to hike more than three times, he said that ‘his own personal outlook has strengthened’ since December, as economic data have been strong.

Big Picture

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.


Jerome Powell

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.

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