The Fed hiked rates by 25 basis points bringing the benchmark federal-funds rate to a range between 5% and 5.25%, a 16-year high. This decision is the tenth consecutive rate increase aimed at combating inflation.
The Fed removed a phrase from its previous policy statement that suggested additional policy increases might be necessary. Instead, they will monitor economic and financial-market developments to determine the extent of additional policy firming needed to bring inflation back to 2%. The Fed's strategy is to slow the economy by raising rates, leading to tighter financial conditions such as higher borrowing costs, lower stock prices, and a stronger dollar. Signs of a slowdown may now be required for the Fed to continue raising rates, and they may look for indicators of stronger growth, hiring, and inflation to proceed.
The markets initial reaction was for the dollar to move lower but the move has been largely retraced. Stocks moved modestly higher. Yields are little changed as well.
Looking at the June expectations for the Fed, it is showing:
- June 88% for a pause.
A quarter-point decline is in September with 75 basis point cut by the end of the year.
Stocks at 2:18 now are showing:
- Dow Industrial Average is up 57.35 points or 0.17%. It was up 43.84 points just before the announcement
- S&P index up 17.33 points or 0.42%. It was up 13.01 points just before the announcement
- NASDAQ index is up 90.59 points or 0.75%. It was up 62.18 points just before the announcement
looking at the US yields:
- 2 year yield is at 3.932% -4.8 basis points. The yield was at 3.939% right before the decision
- 5 year yield is 3.405% -6.0 basis points. The yield was at 3.395% just before the decision
- 10 year yield is at 3.399% -4.0 basis points. The yield was at 3.382% just before the decision
- 30 year yield at 3.715%, -1.7 basis points. The yield is at 3.69% just before the decision
Looking at some of the major currencies:
- The EURUSD was trading at 1.1051 just before the rate decision. The current price trading at 1.1063. High price reached 1.1091 which was a just short of the high price from last week at 1.10950 (highest level going back to and March 2022). There is a swing area between 1.1066 and 1.1075 on the hourly chart. The prices that below that area. It would take a move back above to give the buyers more confidence.
- USDJPY move below its 200 hour moving average and tested the 61.8% retracement of the move up from last week's low at 134.827. The price has moved back higher, and is back above the 200 hour moving average at 135.056. The current price is trading at 135.33. The 50% of the same move higher comes in at 135.388, and a swing area comes in between 135.13 and 135.36. Moving above 135.388 give buyers some hope while a move below the 200 hour moving average at 135.056, would give sellers additional control.
- The GBPUSD extended above the high price from last Friday at 1.25833 reaching a high level of 1.25896 on the initial reaction. The prices which are currently trading at 1.2569. The price was trading at 1.2558 just before the release. Looking at the daily chart, there exists a swing area between 1.2598 and 1.2665. Getting above that area would have traders looking toward the 61.8% retracement of the move down from the May 2021 high to the low seen in September 2022 at 1.27605.
