Fed Pauses Interest Rate Hikes – Dollar Jumps

Key Takeaways:

  • FOMC decided to pause its interest rate hikes in September.
  • The decision met market expectations, while a further quantitative tightening is not out of the books.
  • Dollar index increased in response to the the meeting.
FOMC meeting, Fed Pauses Interest Rate Hikes – Dollar Jumps

YEREVAN (CoinChapter.com) – During the press conference following the latest Federal Open Market Committee (FOMC) meeting on Sep 19-20, Fed Chair Jerome Powell announced the Committee’s decision to pause interest rate hikes for the time being.

We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt. Today we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. Looking ahead we’re in a position to proceed carefully.

said Powell.

FOMC did not raise interest rates above 5.25%

In detail, the FOMC has already raised the federal funds rate to 5.25 percentage points in eleven consecutive revisions since 2022. The Fed has also reduced its securities holdings to tame inflation to the desired 2%.

During the press conference, Powell also pointed out the importance of price stability as the pillar of a viable economy. “Price stability is the responsibility of the Federal Reserve,” said the Chair, adding that without it, the economy “doesn’t work for anyone.”

The latest consumer price index (CPI) report pinned the August headline inflation at 3.7% year-over-year (YoY), a pickup from the 3.2% increase in July. However, experts predicted the pause on further hikes, albeit admitting the high probability of more quantitative tightening in the future.

For example, Nigel Green of deVere Group called a September interest rate increase “unlikely,” given that the steady interest rates have already been “priced-in by financial markets.” However, he underscored the likelihood of another interest rate hike in November.

The uptick in inflation gives the US central bank extra reason to be hawkish moving forward. As such, we also expect the Fed will start to prepare the market for a rate increase at its November meeting.

he told CoinChapter.

DXY rose 0.6% after the FOMC meeting

As CoinChapter reported prior to the meeting, the expectations of a halt in interest rate hikes resulted in hedge funds turning bullish on the US dollar, according to a Bloomberg report. The financial data provider stated that major market players held 18,000 net long positions on the dollar in the week ended Sep 12.

Furthermore, the raised interest rates pushed US Treasury yields to 15-year highs. The higher yields also typically attract capital from investors abroad seeking higher returns on bonds and interest-rate products.

Meanwhile, the markets have already reacted to the FOMC decision. The dollar index, or DXY, rose by 0.6% since the press conference, in line with analysts’ predictions. Notably, the index has risen nearly 6% since mid-July 2023.

Dollar index (DXY) increased by 0.61% since the press conference. Source: TradinVIew.com
The dollar index (DXY) increased by 0.61% since the press conference. Source: TradingView.com

However, market analyst Kevin Green noted the DXY might start a sell-off should the Fed continue its hawkish stance.

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