As we expected, the Fed raised the key interest rate by 0.25%, to 2.50%, following the December meeting, while the regulator did not go in the wake of the markets and D. Trump.
The US Central Bank did not go in the wake of the markets, who passionately wanted him to pause in raising interest rates, and also did not succumb to the statements of President D. Trump that in the current economic situation it is not necessary to continue the cycle of raising interest rates. Following the meeting, it became clear that the regulator continues to assess the state and prospects of the country's economy as positive. He somewhat adjusted his forecasts for economic growth, inflation and the labor market, and also said that we should expect not three in the new year, as was expected at the September meeting, but two increases in interest rates.
The Fed lowered its projections for GDP growth this year from 3.1% to 3.0%, and in 2019, from 2.5% to 2.3%. The long-term forecast of GDP was, on the contrary, raised to 1.9% from 1.8%. In terms of employment, expectations were also reduced, from 4.5% to 4.4%, which is positive. Interestingly, at a press conference, J. Powell, head of the Federal Reserve, said that, despite some slowdown in the growth of the country's economy, as well as stabilization of inflationary pressure at the 1.9% mark, only 11 heads of the Federal Reserve Bank voted for two rate increases. He said that there are still those who consider it possible and the three increases in borrowing costs seem to perceive, in the first place, the situation with the dynamics of inflation as temporary.
The US stock market reacted ambiguously to the decision of the Fed and the performance of its head. At first, stock indices received support, hoping that the regulator would declare a pause in raising interest rates, but when it became clear that the bank had only diminished the growth rate of interest rates from the planned three to two, it became clear to everyone that the general trend towards normalizing monetary policy remained. On this wave, the indices went into a deep minus, and the dollar won back a number of losses received earlier.
Assessing the current situation, we believe that the weakening of the dollar will stop, and new negative trends in the global economy, as well as from the "fields" of trade wars, will support its course against major currencies. It is likely that this will result in the continuation of a wide trading range of major currency pairs.
Forecast of the day:
The AUD / USD currency pair is trading below the level of 0.7100 in the wake of the outcome of the Fed's monetary policy decision. Fixing the price below this mark will lead to its further fall to 0.7040 and 0.7000.
The USD / JPY currency pair breaks out of the range of 112.30-113.90 in the wake of falling demand for risky assets and increasing uncertainty in the dynamics of global economic growth. Fixing the price of 112.30 mark will lead to a further decline to 111.65.