The Fed Officially Raise Interest Rates, Dollar Even Down

The Fed raised interest rates by a quarter point and prepared to accelerate the rate hike with a target of 1.75 percent to 2.0 percent by the end of 2022. This was done to fight the surge in inflation.

On Thursday morning (17/March), the Fed officially raised its benchmark interest rate by 25 basis points to 0.5 percent. This is the first rate hike for the US central bank since 2018 which marked the beginning of tightening monetary policy to fight soaring inflation.

The Fed Officially Raise Interest Rates, Dollar Even Down

The market has long anticipated an increase in the Fed's interest rate. This is because Jerome Powell, as chair of the Fed, has repeatedly given hints regarding a rate hike at the end of the first quarter of 2022.

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There are indications that The Fed's top officials are ready to shift interest rate policy even more aggressively, following the threat of inflation caused by soaring world energy commodity prices. The Fed's latest economic projections show that most policymakers expect interest rates to hover in a range of 1.75 percent to 2.0 percent by the end of 2022.

"The way we think about this is to have a face-to-face meeting... We're going to see what the latest conditions are as they develop and if we judge that we need to go even faster in removing lax policies, then we'll do that," Powell told a news conference after the rate announcement.

According to him, slowing inflation by limiting demand for expensive goods such as houses and cars will actually slow down economic growth and potentially increase unemployment in the future. Inflation is so high these days that the US economy may be on a slowing track. In fact, the Fed's policy makers have recently lowered their 2022 economic growth forecast from 4 percent to just 2.8 percent.

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"This (downgrade in economic growth projections) is just our preliminary assessment of the spillover effects of the war in Eastern Europe which will hit the US economy from a number of paths... You're seeing soaring energy and commodity prices that will weigh more on GDP to some extent," Powell said.

US Dollar Index Slightly Corrected

The market anticipated the increase in The Fed's interest rate last night so it did not have too much influence on the movement of the US Dollar. The Dollar Index was observed to be in the range of 98.35 or weakened 0.05 percent from the daily Open price. This weakening was more due to the "Buy on The Rumor and Sell on The News" phenomenon by investors.

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