Federal Reserve Hikes Interest Rate

Source: Dukascopy Bank SA
On Wednesday, March 16, the US Federal Reserve issued a monetary policy statement and hiked interest rates. The central bank hiked interest rates, as forecast by the markets by only 25 base points. In addition, the bank revealed that it would reduce its balance sheet at one of the upcoming meetings.

Quoting the statement: "Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting."

Released Document

Federal Reserve issues FOMC statement

EUR/USD reacted to the announcement with a minor decline of 35 base points during a period of 12 minutes after the release.

On a larger scale, the rate is still recovering in the aftermath of plummeting and almost reaching the 1.0800 mark.

Initial Reaction

Larger scale situation

Actual Topics

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