Wednesday ended with an interesting turn on the markets after the Federal Reserve's decision and the conference of its head Jerome Powell. After all, the dollar seemed to lose value, and in a way thanks to that gold, silver and bitcoin could gain. The prices of American shares also went up.
The Federal Reserve announced at its December meeting that it would end bond purchases in March, paving the way for three interest rate hikes by the end of 2022.
The U.S. central bank doubled the pace of tapering to $30 billion per month, which could lead to the end of the program in March 2022. However, the U.S. central bank noted that risks to the economic outlook remain due to the omicron mutation of the coronavirus and its possible impact on the economy. Fed officials reiterated that interest rates will be kept at record lows until maximum employment is reached. Officials raised the inflation forecast for 2022 to 2.6 percent from 2.2 percent projected in September, while the unemployment rate is expected to fall to 3.5 percent.
U.S. market won't care about a hike?
The Fed in terms of interest rates and tapering announced what the market could expect. However, it seems that investors were not as positive about the US economy and labor market. Importantly, the improvement in employment and economic growth in 2022 may come with declining inflation, which may ultimately increase the purchasing power of US consumers. This may justify the positive reaction of the U.S. equity market. It is worth recalling that in the decades-long history there has not been a case that the beginning of a cycle of interest rate hikes caused any kind of a bull market. The Fed announces rate hikes because it sees that the economy is in very good shape and can easily withstand higher lending rates.
The dollar was not happy
In the US dollar market, the observed turnaround could be regarded as "buy the rumors, sell the facts". Jerome Powell mentioned during the press conference that the FOMC members' projections are not binding declarations, but expressions of opinion, and everything will depend on market conditions. After the Fed's decision, the EUR/USD exchange rate seemed to turn sharply back from the 1.1220 area to 1.1300.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
