Fed Quick Analysis: Hawks shift to three hikes in 2022, King dollar to end 2021 on top


  • 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


Recommended Content

Editors’ Picks

EUR/USD stays weak near 1.0400 as trading conditions thin out

EUR/USD stays weak near 1.0400 as trading conditions thin out

EUR/USD trades with mild losses near 1.0400 on Tuesday. The expectation that the US Federal Reserve will deliver fewer rate cuts in 2025 provides some support for the US Dollar. Trading volumes are likely to remain low heading into the Christmas break.

EUR/USD News
GBP/USD consolidates below 1.2550 on stronger US Dollar

GBP/USD consolidates below 1.2550 on stronger US Dollar

GBP/USD consolidates in a range below 1.2550 on Tuesday, within striking distance of its lowest level since May touched last week. The sustained US Dollar rebound and the technical setup suggest that the pair remains exposed to downside risks. 

GBP/USD News
Gold holds above $2,600, bulls non-committed on hawkish Fed outlook

Gold holds above $2,600, bulls non-committed on hawkish Fed outlook

Gold trades in a narrow channel above $2,600 on Tuesday, albeit lacking strong follow-through buying. Geopolitical tensions and trade war fears lend support to the safe-haven XAU/USD, while the Fed’s hawkish shift acts as a tailwind for the USD and caps the precious metal.

Gold News
IRS says crypto staking should be taxed in response to lawsuit

IRS says crypto staking should be taxed in response to lawsuit

In a filing on Monday, the US International Revenue Service stated that the rewards gotten from staking cryptocurrencies should be taxed, responding to a lawsuit from couple Joshua and Jessica Jarrett.

Read more
2025 outlook: What is next for developed economies and currencies?

2025 outlook: What is next for developed economies and currencies?

As the door closes in 2024, and while the year feels like it has passed in the blink of an eye, a lot has happened. If I had to summarise it all in four words, it would be: ‘a year of surprises’.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures