The Federal Open Market Committee increases Interest Rates

Daily Analysis - 27/09/2018

A more optimistic view of the U.S. economy


As broadly expected, the policymaking Federal Open Market Committee raised the fed funds rate 25 basis points. This immediately brings the rate from 2% to 2.25%. This is the eighth time that the Fed increase rates since the normalizing policy in December 2015. The funds rate works as the baseline for several kinds of consumer debt as well as savings accounts. The funds rate hike will instantly increase credit card charges, but its impact on other areas normally is more incremental.

With the rate hike, the FOMC continued to forecast one more hike before the end of the year and three in 2019. The Fed held its target rate attached close to zero from last December until this hiking series started as it tried to bring the economy out of the financial crisis. Since then, the central bank has tried to normalize policy through steady and gradual increases.

Dow drops 106 points

On Wednesday US Stocks went lower after the Fed news conference. Stocks closed lower and gave any earlier profits, while remarks from Federal Reserve Chairman Jerome Powell following a monetary policy statement sent interest rates lower and bank stocks along with them.

Powell said to reporters, following the Fed announcement that it increased rates for the third time this year he does not see inflation surprising to the upside, noting: "It's not in our forecasts."

The comment sent rates lower with bank stocks. The 10-year Treasury note yield fell to about to 3.06%. Shares of Bank of America, Citigroup, and J.P. Morgan fell more than 0.9%. The Nasdaq Composite went down 0.2% to 7,990.37. The Dow Jones Industrial Average fell 106.92 points to 26,385.27, while the S&P 500 declined 0.3% to 2,905.97.


Gold prices went down after Fed rate increased

On Wednesday Gold prices went down after the U.S. Federal Reserve increased its benchmark interest rate. The Federal Reserve hiked its benchmark interest rate a quarter point and raised its anticipation for economic growth this year and next. It also presented a plan of what rests forward through 2021. As broadly expected, the policymaking Federal Open Market Committee raised the fed funds rate 25 basis points. That now brings the rate to a range between 2% and 2.25 %, where it last was in April 2008. The popular yellow metal is susceptible to greater interest rates because they tend to support the dollar, making gold extra expensive for buyers with other currencies.

They also drive up U.S. bond yields, decreasing the demand of non-yielding bullion.


GBP/USD dropping

The Cable is trading under 1.3149 as the US Dollar is winning. The greenback is going up in the result of a mixed message by the Fed. The USD originally fell on the replacement of the word accommodative but recovered. On the Technical side, the popular pair is stuck to the 50% recovering of the 2016/18 rally, and the 4 hours timeframe proves that it arranged to stay over medium positive 20 SMA. Technical indicators in the specified chart, are losing their bearish energy and they suggest that speculative interest is not ready to take over the 1.3200 figure. Although, the pair gave a higher high and a higher low for a third consecutive day, which suggests that sellers are not interested for the time being. Brexit titles will probably continue to set the tone for Sterling over the upcoming days.


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