Market Wire - Dollar Rallies and Curve Flattens as Fed Brings Forward Aggressive Hike Schedule
Karthik Sankaran, Senior Market Strategist, firstname.lastname@example.org
In a decision which surprised somewhat on the hawkish side, the Federal Reserve hiked its benchmark rate by 25 basis points today, and significantly brought forward the timetable for additional moves. St. Louis Fed President James Bullard dissented in favour of a 50-basis point move.
According to the accompanying survey of participants - the so-called “dot plot” - the central bank will raise rates by a total of 1.75 percent this year and will follow with another 1 percent in 2023. Policymakers expect rates to peak at 2.8 percent in 2023 before falling in 2024.
Inflation projections also shot higher, with personal consumption expenditure seen topping 4.3 percent in 2022, up from the 2.7 percent expected at the end of last year.
In narrowly focusing on inflation and giving short shrift to downside risks emanating from the war in Ukraine, policymakers triggered a rally in the dollar - particularly against the low-yielding euro. The yield curve flattened as the 2-year yield moved up more aggressively than its 10-year counterpart.