FOMC hikes rates 25bps as expected, but statement says more hikes to come!

The FOMC today hiked rates 25bps to 0.50% , as expected, by a vote of 8-1. St Louis Fed President Bullard was the sole dissenter and voted for a 50bps hike. However, the FOMC statement noted that ongoing increases are appropriate. It expects to begin reducing the size of the balance sheet at “an upcoming meeting’. Fed Chairman Powell said at the press conference that the FOMC has a plan to raise rates steadily over the course of the year and run off the balance sheet. This is hawkish!

Everything you need to know about the Federal Reserve

The FOMC also noted that inflation remains higher than targeted due to elevated prices and supply chain issues. Powell said that the Russia/Ukraine war added to inflation by raising energy costs. He added that inflation will take longer to return to normal than initial expected and that risks are to upside. Powell also said that the committee expects inflation to remain high until middle of next year, turn lower, then turn sharply lower. As a result, the FOMC increased the median forecast for inflation substantially from December. They now see inflation at year end near 4.3%, as opposed to 2.8% previously! The committee also cut its forecast on growth for 2022 to 2.8% from 4.0% in December. Despite the higher inflation and lower growth forecasts, Powell said he does not see a recession over the next year.

The median forecast for rates shows 1.9% at the end of 2022 and 2.8% at the end of 2023. This would indicate there may be as many as 7 rate hikes this year, which indeed makes this hawkish. Note that these are median expectations, meaning some saw inflation even higher at year end!

EUR/USD was extremely volatile surround the release of the statement and the press conference, in what may have been a “Sell the statement, buy the press conference”. EUR/USD made a high just above 1.1000 and moved lower towards 1.0950 into the press conference. However, prices then reversed and moved higher, back above the statement high as Powell was speaking.

Source: Tradingview, Stone X

Trade EUR/USD now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a daily timeframe, EUR/USD had been moving lower in an orderly channel. During the month of February, price broke out of the top side of the channel and failed, only to move lower and test the bottom of the channel. However, price was halted at the 161.8% Fibonacci extension from the low of January 28^th to the highs of February 10^th, near 1.0920. Expectations are that the trend will continue, however there is room within the channel to move higher first. Resistance is at the highs of March 10^th near 1.1121 (also previous lows), then the top, downward sloping channel line near 1.1210. Support is at the bottom trendline of the channel near 1.0890, then the lows of March 7^th at 1.0806.

Source: Tradingview, Stone X

The Fed is concerned about inflation, as it now expects 4.3% by the end of the year. As a result, the dot plot shows roughly 7 rate hikes baked in for this year, in addition to unwinding of its balance sheet. This could be viewed as a hawkish meeting. Watch the inflation data moving forward to see if the FOMC will feel it’s necessary to hike by 50 bps at one of the upcoming meetings!

Learn more about forex trading opportunities.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.