The US Federal Reserve on Wednesday announced that it had lifted interest rates by 75 bps to 1.50-1.75%, as expected. The vote split was 10 to one, with Esther George favouring a 50 bps rate hike. The US central bank said in its statement that it anticipates ongoing increases to interest rates to be appropriate, noting that it is strongly committed to returning inflation to 2.0%. 

The Fed released its quarterly economic projections. It now sees PCE inflation ending 2022 at 5.2%, up from 4.3% in March, ending 2023 at 2.6%, at 2.2% in 2024 and then back to 2.0% in the long run. The Fed said it sees US real GDP growth at 1.7% in 2022, down from 2.8% in its March forecasts, then growing at a pace of 1.7% in 2023 and 1.9% in 2024, before then growing at a long-run rate of 1.8%.  

The Fed also released its latest dot-plot, which shows where policymakers expect rates to be at the end of 2022, 2023 and 2024. The median view amongst Fed members is that interest rates ill end 2022 at 3.4%, well up from the last dot-plot back in March, when the median view was 1.9%. Rates are then seen ending 2023 at 3.8%, before dropping back to 3.4% by the end of 2024. The Fed's long-run view of interest rates was lifted slightly to 2.5% from 2.4% back in March. 

Click here for real-time coverage of the Fed's policy announcement.  

Market Reaction

The dollar saw kneejerk upside in wake of the Fed's 75 bps rate hike and hawkish new set of economic forecasts (which see much higher inflation) and dot-plot rate guidance. Some analysts had been still thinking the Fed might lift interest rates by 50 bps, so these dovish bets being priced out is the reason for the kneejerk rally.

The DXY momentarily hit fresh multi-decade highs near 105.80, but has since fallen back to close to 105.60. 

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