FX.co ★ Latest policy stance of Fed increases optimism in markets

The Federal Reserve raised interest rates by 25 basis points, widening the range to 0.25-0.50%. It also planned to reduce its balance of bond purchases despite growing geopolitical uncertainty.

According to the US central bank, it will continue to raise rates even in the face of rising inflation and slowing economic growth. It assumes that it will increase to 1.9% by the end of this year, much higher than the 0.9% forecast last December.

But economic growth is projected to slow down this year, primarily due to the conflict in Eastern Europe. The Fed said US GDP will only grow by 2.8% in 2022, then by 2.2% and 2.0% in 2023 and 2024.

With regards to inflation, the central bank expects core inflation to rise to 4.1% this year, then by 2.6% in 2023. In 2024, it could soar to 2.3%.

Overall consumer prices, on the other hand, are projected to rise by 4.3% in 2022.

Headline inflation will also gain 2.7% next year, then increase by another 2.3% in 2024.

In terms of employment, the Federal Reserve predicts a fairly stable growth for the next two years. The unemployment rate will remain at 3.5% this year and next, then rise to 3.6% in 2024.

Although the Federal Reserve did not raise rates by 50 basis points as expected, economists say it has taken a tough hawkish stance.