USD Down as Fed keeps Rate Forecasts Unchanged

18237500 - businessman hand pointing to investment as concept

Rates as of 0500 GMT

Market Recap

Yesterdays meeting of the Federal Open Market Committee FOMC, the ratesetting body of the US central bank, clarified how the group will react to changes in the economic picture in the context of its new flexible average inflation targeting FAIT framework. This new reaction function requires a much higher level of pressure on inflation to raise rates than previously. Accordingly, the market is likely to revise its forecast for when the Fed might start normalizing policy. Thats bearish for the dollar, as we quickly saw.

The Committee sharply revised up its growth forecast for this year, sharply revised down its unemployment forecast to the point where it now sees the unemployment rate percentage point below its estimate of the longrun level and revised up its inflation forecast so that its exceeding its 2 target this year and in 2023.

But remarkably, the median 2023 dot was unchanged despite the improved outlook and inflation ending the period slightly above the Feds 2 target.. Last time, five out of the 17 Committee members saw higher rates in 2023; this time, seven of 18. That means most of the Members expect to keep the Fed funds rate unchanged through the end of 2023 despite faster growth, ontarget inflation and unemployment below what they estimate is the sustainable level over the longer term 4.0. Its clear that they are indeed sticking with what theyve said they wont raise rates preemptively, but only until inflation has…

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