FED Hikes Not Far From ‘Neutral’ Rates

By Michael Baker
ETX Capital

Last night the US Fed followed through with expectations and raised the target range for the Federal Funds rate to 175-200 bps. Future projections by the Federal Reserve Open Market Committee (FOMC) moved ever so slightly to indicate a further two hikes in 2018, three hikes in 2019 and one hike in 2020.

Governor Jerome Powell’s press conference offered us further insight into the meeting and where they see policy in the future, stating we’re “four hikes away from a neutral rate”. A key takeaway from the forward guidance was the omission of the line “The Federal Funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run”. Powell went on to highlight the risk of rising interest too slowly. The expectation of a hike at every FOMC meeting which features a press conference has been curbed as from 2019 every announcement will be followed by a media event.

Initial reactions to the hike were dollar positive, sending EURUSD down 50 pips in a few minutes. The market gradually chopped about and fell a little more after the press conference began before pairing loses and trading higher then it was pre-announcement. Prices have gradually risen overnight with traders focusing more on longer-term Fed policy which has not changed from previous meetings.

Prices rose into the announcement before coming off sharply & then resuming the uptrend

ETX-chart-fed-june-2018