Breaking: Fed hikes policy rate by 25 bps to 4.75-5% as expected

The US Federal Reserve (Fed) announced on Wednesday that it raised the policy rate, federal funds rate, by 25 basis points to the range of 4.75-5% following the March policy meeting. This decision came in line with the market expectation.

Follow our live coverage of the Fed's policy announcements and the market reaction.

In its policy statement, the Fed dropped the reference to "ongoing increases" and said that some additional policy firming may be appropriate.

Key takeaways

"Likely to see tighter credit conditions that weigh on economic activity, hiring and inflation."

"US banking system is sound and resilient."

"Will continue reducing balance sheet as planned."

"Job gains have picked up, running at a robust pace."

"Inflation remains elevated."

"Fed vote in favor of policy was unanimous."

Market reaction

The US Dollar Index fell sharply with the initial reaction and was last seen losing 0.5% on the day at 102.70. 

Dot plot

The Federal Reserve's revised Summary of Economic Projections (SEP), the so-called dot plot, showed that the median view of the policy rate at end-2023 stood at 5.1%, matching December's projection.

  • Fed's median view of fed funds rate at end-2024 4.3% (prev 4.1%).
  • Fed's median view of fed funds rate at end-2025 3.1% (prev 3.1%).
  • Fed's median view of fed funds rate in longer run 2.5% (prev 2.5%).

Fed policymakers see slower 2023 GDP growth, lower unemployment and less progress on inflation than they saw in December, per Reuters. Fed projections imply one more 25-basis-point rate hike this year and 75 bps of rate cuts in 2024.

  • Federal Reserve expected to hike interest rates by 25 basis points.
  • Summary of Economic Projections, known as the dot plot, will shape how the markets react.
  • FOMC will need to find a balance between addressing inflation pressures and banking troubles.

The Federal Reserve (Fed) is expected to raise its policy rate by 25 basis points (bps) to the range of 4.75%-5% on Wednesday, March 22 at 18.00 GMT. 

The market positioning suggests that such a decision is already largely priced in, opening the door for a significant reaction to the Fed’s communication, the revised Summary of Economic Projections (SEP) and Chairman Jerome Powell’s press conference regarding future policy actions. 

According to the CME Group’s FedWatch Tool, the probability of a 25 bps hike this week stands at around 84%, an almost certain chance. For the March 22nd meeting, the market is currently pricing in only a 16% chance of the Fed leaving its policy rate, the federal funds rate, unchanged at the range of 4.5%-4.75%.

TD Securities experts expect a balanced statement from the Federal Reserve:

“We expect a 25 bps rate hike taking the Fed funds target range to 4.75%-5.00%. We anticipate that post-meeting communication will: (i) stress that the Fed is not done yet in terms of further tightening of its policy stance, (ii) acknowledge the more uncertain economic environment, with a large emphasis on data dependence, and (iii) underscore a willingness to guarantee sufficiently liquid market conditions.”

Federal Reserve interest rate decision: What to know in markets on Wednesday, March 22

  • The US Dollar (USD) suffered heavy losses last week, pressured by falling US Treasury bond yields and the re-pricing of the Fed’s rate outlook following the collapse of the Silicon Valley Bank and Signature Bank. 
  • As investors move to the sidelines ahead of the Fed’s policy announcements, the US Dollar Index consolidates its losses.
  • US stock index futures trade mixed following Tuesday's risk rally and the 10-year US Treasury bond yield continues to fluctuate above 3.5%. 
  • The European economic docket will not feature any high-impact data releases on Wednesday, allowing the USD’s reaction to the Fed to drive EUR/USD’s action.

When is the Fed meeting and how could it affect EUR/USD?

The Federal Reserve is scheduled to announce its interest rate decision and publish the revised Summary of Economic Projections (SEP), the so-called dot plot, this Wednesday, March 22, at 18:00 GMT. This will be followed by the post-meeting FOMC press conference at 18:30 GMT. Investors had begun to re-price the Fed’s policy outlook following last week's collapse of two mid-size US banks – Silicon Valley Bank and Signature Bank. 

That said, investors are still forecasting a 25 bps rate increase amid easing fears over a deepening liquidity crisis following the quick measures taken by the Fed. This, along with a positive development surrounding the Credit Suisse saga, suggests that the Fed could stay focused on battling inflation. Nevertheless, the terminal rate projection in the dot plot and Fed President Jerome Powell’s comments on the policy outlook and the market turmoil will provide fresh clues regarding potential future policy steps.

In December, the Fed’s SEP revealed that the median view of the policy rate at end-2023, the terminal rate, stood at 5.1%, up from 4.6% in September's SEP. At this point, an upward revision to the terminal rate projection shouldn’t be surprising. Having said that, where the terminal rate lands will reveal whether policymakers have turned reluctant to continue with rate hikes. Moreover, market participants will want to know if policymakers forecast a rate cut before the end of the year, given the negative impact of high interest rates on financing conditions. 

According to Yohay Elam, Analyst at FXStreet, “after the initial reaction, the focus will shift to interest rate projections. I expect no significant change for 2023 – the Fed will likely stick to its guns about refusing to slash borrowing costs this year. By signaling rates will near 5.50%, the Fed would continue conveying a message of confidence. It could offer a token reduction of its projections for 2024 and 2025 – but markets do not look that far.”

FOMC Chairman Jerome Powell will have to respond to tough questions on the state of the banking sector. His communication on how the Fed plans to continue to tame inflation while reassuring that SVB turmoil will remain contained will impact the action in US Treasury bond yields and the US Dollar’s performance against its major rivals.

Previewing Powell’s presser, “if fighting inflation is an overriding priority, even if it results in a recession, shares would tumble, and the Greenback would surge. Such a clear-cut message also has low chances,” Elam noted. “I expect Powell to dedicate significant emphasis and time to the labor market – the Fed's second official mandate, alongside price stability., He could tie the bank's next moves to jobs data rather than solely banks vs. inflation.” 

Eren Sengezer, European Session Lead Analyst at FXStreet, shares his outlook for EUR/USD: “Heading into the key central bank event risk, the EUR/USD pair trades with a positive bias comfortably above 1.0700. The Relative Strength Index (RSI) indicator on the daily chart stays near 60, suggesting that the pair has more room on the upside before turning technically overbought.”

“Nevertheless, a hawkish dot plot combined with Powell’s assurance that they will focus on taming inflation should help the US Dollar gather strength and cause the pair to turn south. In that scenario, the 50-day Simple Moving Average (SMA) is likely to act as dynamic support at around 1.0700. A daily close below that level could open the door for an extended slide toward 1.0600 (100-day SMA) and 1.0540 (static level).”

“On the upside, EUR/USD could face interim resistance at 1.0850 (static level) before targeting 1.0900 (psychological level, static level) and 1.1000 (psychological level),” Eren adds further.

Federal Reserve Related content

About Federal Reserve

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content

Recommended content

Editors’ Picks

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD stays under bearish pressure and trades at its lowest level since early May below 1.0700. Unabated US Dollar demand amid risk aversion and looming EU political uncertainty exert downside pressure on the pair heading into the weekend.


GBP/USD slumps to multi-week lows below 1.2700

GBP/USD slumps to multi-week lows below 1.2700

GBP/USD extends its decline on Friday and trades at its lowest level in nearly a month below 1.2700. In the absence of high-tier data releases, the US Dollar continues to benefit from souring market mood, forcing the pair to stretch lower in the second half of the day.


Gold clings to recovery gains at around $2,330

Gold clings to recovery gains at around $2,330

Following Thursday's pullback, Gold holds its ground on Friday and trades in positive territory near $2,330. The benchmark 10-year US Treasury bond yield edges lower toward 4.2%, helping XAU/USD push higher ahead of the weekend.

Gold News

Monero price poised for a downward correction

Monero price poised for a downward correction

Monero price has encountered resistance at a critical level. The technical outlook suggests a potential short-term correction as momentum indicators signal a bearish divergence.

Read more

Week ahead – RBA, SNB and BoE next to decide, CPI and PMI data also on tap

Week ahead – RBA, SNB and BoE next to decide, CPI and PMI data also on tap

It will be another central-bank-heavy week with the RBA, SNB and BoE. Retail sales will be the highlight in the United States. Plenty of other data also on the way, including flash PMIs and UK CPI.

Read more