span>span>Wednesday 21st September /span>span>2022/span>span> - 21:55 (BST)/span>/span>
The US dollar pushed to fresh highs following hawkish comments by the Federal Reserve during its latest meeting. The central bank raised its base rates by a widely anticipated 75bps to reach 3% for the first time since early 2008.
More telling were comments from policymakers that now expect a level of 4.4% to be reached by the end of 2022 and potentially rise further during 2023. This was significantly higher than previous forecasts and shows just how aggressively it aims to curb recent runaway inflation within the US.
They also foresee US economic growth slowing to 0.2% this year, before picking back up to 1.2% over 2023. Elsewhere, unemployment is projected to reach 4.4% whilst inflation is unlikely to return to the banks 2% target until 2025.
Fed Chair, Jerome Powell, was unable to rule out the possibility higher rates would hurt the wider US economy when quizzed during the FOMC press conference, stating;
“No one knows whether this process will lead to a recession or if so, how significant that recession would be. Avoiding such an outcome would depend on how quickly wage and price inflation abates and whether the red-hot jobs market starts to cool down”.
Powell also warned “The chances of a soft landing are likely to diminish” because monetary policy needed to be “more restrictive or restrictive for longer”.
These comments, combined with Russia’s recent nuclear threat, saw significant risk-aversion sweep markets - GBP/USD fell under $1.13 for the first time since 1985 and EUR/USD traded well below parity.
