Euro-Dollar Fundamental + Technical Forecast 23:20:08 (UTC)
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Wednesday, the Federal Reserve made a much-anticipated decision about monetary policy: it raised interest rates by 3/4 of a percentage point. The Fed chose to boost the target range for the federal funds rate by 75 basis points, to 3 to 3.25 percent, because it aims to achieve full employment while keeping inflation at 2 percent in the long run.
The Fed's third consecutive 75-basis-point rate rise raises rates to their highest level since early 2008. The Fed also said it thinks it's okay to keep raising interest rates as long as inflation stays high.
With the decision, the Fed also provided economic estimates indicating that rates will be raised to 4.4 percent by the end of the year. This is significantly more than the 3.4 percent expected in June. Rates are expected to rise to 4.6% by the end of 2023 before falling in 2024 and 2025, according to Fed officials.
The most recent predictions also reveal that Fed policymakers now expect GDP to rise by only 0.2 percent in 2022, down from the 1.7 percent increase predicted in June.
The median prediction for GDP growth in 2023 has also been reduced to 1.2 percent from 1.7 percent in June. GDP is predicted to expand by 1.7 percent in 2024 and 1.8 percent in 2025. Fed officials also raised their predictions for consumer price increases over the following three years, with prices predicted to rise by 5.4 percent this year before slowing to 2.8 percent in 2023 and 2.3 percent in 2024.
The Fed's statement was basically the same as it was in July, although the central bank acknowledged that recent signals suggest a modest increase in spending and output, while saying in July that those signs had become weaker. Fed Chair Jerome Powell vowed to "stay at it until the job is done" in his post-meeting press conference.
In order to battle rising inflation, Powell believes the Fed will need to increase rates to a "restrictive level" and hold them there "for some time." The Fed chairman also said that lowering inflation will probably require a "sustained period of below trend growth," which he knew could lead to "some weakening" of the job market.
"Restoring price stability is critical to attaining maximum employment and stable pricing in the long run," Powell added. "We'll keep working until we're satisfied the task is done."
The Fed's next monetary policy meeting is slated for November 1-2, with the last meeting of the year scheduled for December 13-14.
The Fed's third consecutive 75-basis-point rate rise raises rates to their highest level since early 2008. The Fed also said it thinks it's okay to keep raising interest rates as long as inflation stays high.
With the decision, the Fed also provided economic estimates indicating that rates will be raised to 4.4 percent by the end of the year. This is significantly more than the 3.4 percent expected in June. Rates are expected to rise to 4.6% by the end of 2023 before falling in 2024 and 2025, according to Fed officials.
The most recent predictions also reveal that Fed policymakers now expect GDP to rise by only 0.2 percent in 2022, down from the 1.7 percent increase predicted in June.
The median prediction for GDP growth in 2023 has also been reduced to 1.2 percent from 1.7 percent in June. GDP is predicted to expand by 1.7 percent in 2024 and 1.8 percent in 2025. Fed officials also raised their predictions for consumer price increases over the following three years, with prices predicted to rise by 5.4 percent this year before slowing to 2.8 percent in 2023 and 2.3 percent in 2024.
The Fed's statement was basically the same as it was in July, although the central bank acknowledged that recent signals suggest a modest increase in spending and output, while saying in July that those signs had become weaker. Fed Chair Jerome Powell vowed to "stay at it until the job is done" in his post-meeting press conference.
In order to battle rising inflation, Powell believes the Fed will need to increase rates to a "restrictive level" and hold them there "for some time." The Fed chairman also said that lowering inflation will probably require a "sustained period of below trend growth," which he knew could lead to "some weakening" of the job market.
"Restoring price stability is critical to attaining maximum employment and stable pricing in the long run," Powell added. "We'll keep working until we're satisfied the task is done."
The Fed's next monetary policy meeting is slated for November 1-2, with the last meeting of the year scheduled for December 13-14.
Nota
Asian stocks closed mostly lower on Wednesday after Russian President Vladimir Putin announced a partial military mobilization in the country, bringing geopolitical tensions to the forefront.In a televised address, Putin said the partial mobilization of its 2 million-strong military reserves is needed to defend Russian territories, claiming the West wants to destroy Russia and does not want peace in Ukraine.
Worries about aggressive Federal Reserve policy tightening also kept investors on their toes ahead of the central bank's highly anticipated interest rate decision later in the day.
China's Shanghai Composite Index slipped 0.2 percent to 3,117.18 as the Asian Development Bank cut its economic growth forecast for China and also lowered its outlook for developing Asia, citing the Ukraine conflict, Beijing's Covid Zero policy and central banks' efforts to combat inflation. Hong Kong's Hang Seng Index tumbled 1.8 percent to 18,444.62 on Fed jitters.
Japanese shares hit a two-month low as caution prevailed ahead of the Fed, Bank of Japan and Bank of England meetings.
The Nikkei 225 Index closed 1.4 percent lower at 27,313.13, marking its lowest closing level since July 19. The broader Topix slumped 1.4 percent to 1,920.80, its weakest close since September 7.
Air conditioner manufacturer Daikin Industries led losses to close down nearly 4 percent, while Japan Steel Works soared 4.1 percent despite the company lowering its profit forecast for the current fiscal year.
Seoul stocks fell ahead of a widely expected hefty rate hike from the U.S. Federal Reserve. The Kospi dropped 0.9 percent to 2,347.21. Samsung SDI, Naver and Kakao all lost around 2 percent.
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