Toby Sturgeon, Global Head of Fiduciary Investment Services at ZEDRA, said: "This evening’s announcement from the Federal Reserve was highly anticipated to say the very least. The questions that markets were looking for answers to included whether there would be a 50bp hike at any stage this year, does the Fed have a terminal rate or target and how many hikes will there likely be this year. It was widely anticipated that the Fed would increase rates by 25bps, indeed this was referenced also by Jerome Powell two weeks ago and he didn’t disappoint.
“Concerns over persistently high and rising inflation with a strong economic picture made this something of a certainty. Prior to the meeting, bond markets raced ahead at a pace not seen since the 1980’s and this continued as yields spiked on news that median rates were forecast to be at 2.8% by the end of 2024
“US equity markets reduced earlier gains and hit session lows after the announcement but recovered during the Chairman’s statement. Indications are that they will hike at every meeting this year given the strength of the American economy. The US dollar rose and gold fell sharply as US 2 Year yields jumped from 1.83% to over 1.98% on the announcement with clear indications of a flattening yield curve.”
Giles Coghlan, Chief Analyst at HYCM said: “If there was ever any doubt, the Federal Reserve has today confirmed that the era of ‘transitory’ inflation is over. As many analysts had predicted, policymakers have opted to begin a long-anticipated cycle to hike rates, despite the many uncertainties that persist in the global economy. Last week’s Consumer Price Index came in at 7.9% for the year through February – something that has no doubt been exacerbated by Russia’s invasion of Ukraine, which has triggered supply issues and a fresh surge in commodities. However, has the Fed been hawkish enough?
“Right now, the central bank has a lot on its plate – it must balance the inflation narrative alongside the risk of sending the U.S. economy into a recession. Going forward, any further hiking action will come with caveats – we may see a more dovish approach to tightening, rather than the aggressive approach we have been primed for over the past year. But today, we traders and investors could see a ‘buy the rumour, sell the fact’ response to the announcement, which would favour upside in stocks, gains for gold and silver, as well as EURUSD upside and a drop in US 10 year yields.”
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