The Federal Reserve increased interest rates by 75 bps to 3.25% overnight as policy makers took steps to bring soaring inflation under control.
Actions by Jerome Powell’s Fed yesterday saw the dollar soar, sending the Euro well below parity and to levels not seen for 20 years.
#Euro plunges to 20y low after US central bank Fed pushes ahead w/bumper interest rate hike as it steps up #inflation fight. pic.twitter.com/WcHisnsnjl
— Holger Zschaepitz (@Schuldensuehner) September 22, 2022
The Euro is facing pressure of its own with an European energy crisis that shows no signs of abating in the short term, and the weakening Euro is going to only exacerbate their problems.
Indeed, the sharp pace of the Fed’s hiking cycle will send waves through the financial system, just at a time Europes economies are seeking stability.
“The risks for financial markets are threefold. First, there remains uncertainty over when the Fed ends this rate hiking cycle. Second, the pace of the increase creates further risk for markets. Third, the economic consequences – which are experienced with a 12 to 18-month lag – will depend on the level and pace of hikes,” said Daniel Casali, Chief Investment Strategist at wealth manager Evelyn Partners.
“With respect to the first two points, there is some guidance from the FOMC’s latest interest rate projections, which are released at the end of every calendar quarter meeting. The FOMC median Fed Funds interest rate forecasts (the so-called “DOTS”) of committee members rose to 4.4% (3.4% in June) for end-2022, 4.6% (3.8% in June) for end-2023 and 3.9% (3.4% in June) for end-2024. These forecasts indicate that US rates are set to rise further from here before falling in 2024.”
#Fed sharply raises rate projection. Most hawkish dots (& there are 6 of them) now see Fed funds rate reaching 4.75% in 2023. In June, the highest dot was at 4.4% by the end-2023 and belonged to Kashkari, who had previously been one of the central bank’s most dovish members. pic.twitter.com/Q5IIkS992A
— Holger Zschaepitz (@Schuldensuehner) September 21, 2022
