The Fed makes its first 0.75% rate hike since 1994, but successfully sells the prospect of a “soft landing” for the US economy while promising continuing tough action on inflation.
- The US Federal Reserve hiked rates by 0.75% yesterday, the biggest hike since 1994, bringing the US Federal Funds Rate to 1.75%. This was at the higher end of expectations.
- Fed Chair Jerome Powell promised tough action against inflation, including another potential rate hike of 0.75% next month. The Fed is forecasting that inflation will fall sharply over the coming months, from the current annualized rate of 8.6% to 3.4%. The Fed also forecasts its Federal Funds Rate will rise to 3.4% by the end of 2022.
- Markets seem to have been somewhat impressed by the Fed’s statement, projections, and rate hike, insofar as there has been a minor relief rally in stocks and other risky assets, while yields and the US Dollar have cooled off. To some extent this may be a case of “buy the rumour, sell the fact”. The rest of this week, however, will be telling in how the market reacts – further strong risk-off movement cannot be ruled out.
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- Long-term trends remain in place against stock markets and in favour of the US Dollar, which may reassert.
- Despite the minor relief rally, BTC/USD and other cryptocurrencies continue to look relatively weak which is a bearish sign for crypto. The price could trade as low as $13k in a matter of days, according to technical analysis of the bubble of recent months. There are likely to be a lot of forced liquidations of long positions in view, and if the price reaches approximately $19k, much more. It is a similar story in Ethereum, while minor coins are at risk of disappearing altogether.
- US retail sales data yesterday came in lower than expected, showing a month on month increase of only 0.5% compared to the 0.8% which had been expected.
- Today will be a very important day in the Forex market, with monthly policy releases due from the Bank of Japan, the Bank of England, and the Swiss National Bank, affecting three of the most major global currencies.
- Daily new coronavirus cases globally fell again last week, continuing a long-term trend.
- It is estimated that 66.3% of the world’s population has received at least one dose of a coronavirus vaccination, while approximately 6.9% of the global population is confirmed to have contracted the virus at some time, although the true number is highly likely to be much larger.
- Total confirmed new coronavirus cases worldwide stand at over 542.5 million with an average case fatality rate of 1.17%.
- The rate of new coronavirus infections appears to now be significantly increasing in Belize, Morocco, Qatar, Saudi Arabia, Israel, Uruguay, Brazil, Chile, Germany, Guatemala, and the UAE.
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