Bond yields and dollar up, rest settled down-this was the market reaction to the latest FOMC meeting. As expected, the Fed kept its monetary policy settings unchanged, with Fed funds target range at 0.00-0.25% and bond-buying pace at 120bn$ per month. But the hawkish tone, which we didn’t expect either the market.
Driving factors:
The above table shows that the US central bank has upgraded its growth and inflation estimates noticeably. The core PCE inflation upgraded to 3% from 2.2 y/y and the unemployment rate fall back to 3.8% in 2022 vs. 3.9% March projections.
The latest FOMC dot plot and the economic projections are likely to elevate the USD against G10 currencies but not in a straight line, though. Especially against the CHF, EUR, and JPY, the trend is down against the dollar.
Economists reaction:
RBNZ vs. Fed: RBNZ is leading, as per ANZ.
In a research note Economist at ANZ said, “We are bringing forward our first forecast OCR hike to February 2022”.
Interestingly ANZ forecast OCR will take off quicker than the Fed. Wednesday Fed meeting confirmed members of the Fed discussing a rate hike in 2022. With the latest report, we leaned that ANZ is expecting the 1st OCR hike in 8 months timeframe.
Price action post-Fed:
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