The Federal Reserve will announce the result of it latest policy deliberations at 18.00 London time and economists expect the decision will be to raise the Federal Funds rate range to 1.75% to 2%, from its current 1.5% to 1.75% range.
The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year. With the rate hike nearly fully priced in, investors will closely pour over the Fed's forecasts for interest rates, known as the "dot-plot" for signs of more interest rate hikes.
Negative for gold though is that the central bank also forecasts tame inflation pressures throughout year.
Besides raising its projection for rate increases this year from three to four, the Fed removed a key sentence from the previous statement that had been viewed as foreseeing a need to keep rates low for an extended period.
The Fed now foresees four rate hikes this year, up from the three it had previously forecast. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing global trade disputes could slow US growth. The dollar.DXY pared losses against a basket of currencies.
Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m., his second since taking the helm from Janet Yellen in February. The more likely a slowing of the Fed rate hike cycle becomes, the more the tightening signals expected from the European Central Bank tomorrow are likely to be reflected in the EUR-USD exchange rate.
The Fed's short-term policy rate, a benchmark for a host of other borrowing costs, is now roughly equal to the rate of inflation, a breakthrough of sorts in the central bank's battle in recent years to return monetary policy to a normal footing. Economic activity is projected to expand 2.4% in 2019, unchanged from the previous forecast; finally, the economy is expected to grow 2.0% in 2020, unchanged from the previous forecast. The media forecasts expect the unemployment rate to drop to 3.6% this year, down from March's projection of 3.8%.
Interest rates are expected to increase to 3.1% next year, up from the previous forecast of 2.9%. Investors had given just over a 91 percent chance of a rate rise on Wednesday, according to an analysis by CME Group. The Fed has signaled that it will continue to gradually increase rates in response to higher inflation and strength in the US labor market. While Japan's central bank isn't expected to make any major policy shifts, anticipation is rising that the ECB may outline as early as this week plans to begin paring its bond-buying stimulus program as a prelude to ending them altogether.
Reichelt says that in the absence of change in the dot-plot, or a hawkish shift in Fed language, then currency markets will probably stick to their current view that United States interest rates may plateau as soon as next 2019, as the Federal Reserve takes the Fed Funds rate up to the so called neutral rate.
Individual Fed policymakers have expressed concerns about the economic risks of a broad tit-for-tat tariff retaliation, but have said they would not change their policies or forecasts until those risks are realized.
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