EURUSD is back to rising after the US Fed’s restrained decision. The major currency pair resumed growing. The current quote for the instrument is 1.1033. It’s been the fifth consecutive trading session within the uptrend. So, the key highlight of this week has been finally over: the US Federal Reserve System had the meeting and decided to raise the benchmark interest rate by 25 basis points, up to 0.25-0.50%. Everything happened just as expected: the rate is now above zero. 8 FOMC members voted for a 25-point hike.
Now it’s known that the majority of the FOMC members are anticipating 7 rate hikes this year. The regulator announced that the QE programme would be completely closed before the end of March and that it may shrink its portfolio (treasury securities, agency debt and agency mortgage-backed securities), which is currently estimated at $9 trillion, in May.
The Fed also mentioned a severe imbalance of demand and supply, hence the inflation boost. The reasons for that are energy price surge, price pressure, geopolitics, and consequences of the coronavirus pandemic.
The inflation target remains at 2% - the Fed is likely to remind market players about the stability of its monetary policy. As a matter of fact, everyone is well aware that bringing the CPI to 2% from the current reading of 8% will take a huge amount of time.
Intriguingly, the GDP forecast for 2022 was revised from 4% to 2.8%, while the expected reading for 2023 remained unchanged at 2.2%. Inflation in 2022 is expected at 4.3% (instead of 2.6%), in 2023 году – 2.7% (earlier 2.3%).
Basically, all the things that were announced offered nothing new. As a rule, the Fed is very cautious in the comments, and the things it said yesterday had already been shaped by the media as relevant information. One should remember that the Fed might be very flexible in its monetary activities and adjust the policy both ways if necessary. Most likely, the interest rate will add 25 more basis points in May.
