- The Federal Reserve has doubled the pace of tapering to $30 billion.
- Median Fed forecasts show three hikes in 2022, higher than expected.
- An open door to a hike in March could further boost the dollar.
This is what it sounds like when the doves cry – monetary policy was unlikely on Prince's mind, but his famous 1980s song reflects the Federal Reserve's decision as it confronts 1980s-style inflation. The Fed expects three rate hikes in 2022. That is more than expected and a sharp hawkish shift from September.
The dot plot comes on top of the expected policy announcement – a doubling of the taper pace from $15 to $30 billion. With current bond-buying standing at $90 billion, the announcement implies the Fed would conclude the process in March.
"Beware the Ides of March" – a warning to Julius Ceasar over 2,000 years ago is relevant for 2022 when the Fed could raise rates, contrary to pre-decision estimates of a 67% chance of a hike in May.
Inflation could still fall in the next three months, amid easing in supply chains and falling oil prices. However, the mere threat of a hike in March will likely keep the dollar bid through year-end – enjoying a Santa Rally of sorts.
Markets could practice caution around Fed Chair Jerome Powell's press conference, but when the dust settles, the greenback could gain further ground.
What about stocks? The initial reaction is positive, as investors are trained in "buying the dip." Even if shares suffer some jitters, the urge to buy shares of companies making money could outweigh the fears of higher rates. Moreover, the Fed could be seen as giving inflation a good fight, thus providing stability. Stocks love stability.
Overall, the dollar could gain ground while the stocks could struggle before advancing.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD retreats from daily highs, holds above 1.0800
EUR/USD loses traction but holds above 1.0800 after touching its highest level in three weeks above 1.0840. Nonfarm Payrolls in the US rose more than expected in June but downward revisions to May and April don't allow the USD to gather strength.
GBP/USD struggles to hold above 1.2800 after US jobs data
GBP/USD spiked above 1.2800 with the immediate reaction to the mixed US jobs report but retreated below this level. Nonfarm Payrolls in the US rose 206,000 in June. The Unemployment Rate ticked up to 4.1% and annual wage inflation declined to 3.9%.
Gold approaches $2,380 on robust NFP data
Gold intensifies the bullish stance for the day, rising to the vicinity of the $2,380 region following the publication of the US labour market report for the month of June. The benchmark 10-year US Treasury bond yield stays deep in the red near 4.3%, helping XAU/USD push higher.
Crypto Today: Bitcoin, Ethereum and Ripple lose key support levels, extend declines on Friday
Crypto market lost nearly 6% in market capitalization, down to $2.121 trillion. Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) erased recent gains from 2024.
French Elections Preview: Euro to “sell the fact” on a hung parliament scenario Premium
Investors expect Frances's second round of parliamentary elections to end with a hung parliament. Keeping extremists out of power is priced in and could result in profit-taking on Euro gains.