Following the closing in Europe, the Fed chose to keep interest rates on hold, as had been generally anticipated. Chair Powell adopted a measured tone, noting that future policy choices will be based on the incoming data.
The Fed’s revised interest rate dotplot revealed that the median prediction remains for rates to conclude this year at 5.50-5.75%, up from their current level of 5.25-5.50%.Fed officials also raised their rate predictions for next year, signalling that a swift policy reversal is unlikely.
Interest rate forecasts grew less optimistic in the market’s response to the meeting. There is currently a 60% possibility that the Fed will hike rates once more, Furthermore, rates are expected to be reduced by about 60 basis points from their current level in 2024, as opposed to 75 basis points before the meeting. Overnight, the dollar recovered some of its earlier-day losses.
Today, the focus of monetary policy shifts to the Bank of England. Current futures pricing implies that the Bank of England will hike UK interest rates by 25 basis points, down from an 80% possibility prior to the release of CPI data yesterday. The policy decision creates some event risk for sterling.