Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

FOMC preview – Powell to hike rates, but what comes next?

Markets and investors are preparing for the first Fed rate increase since the pandemic, with further increases likely as the year goes on.

FOMC Source: Bloomberg

In many ways, this meeting is not really about the first-rate increase. This is viewed as a near-100% certainty by markets, but the bigger questions are what comes next, and how will inflation react. This rise in the prices is putting pressure on homeowners, and further rises in interest rates will only exacerbate this pressure.

25 basis point increase in rates expected

The most recent testimony from Powell suggested he would support a 25 basis point (bp) increase, but not a 50-basis point move. The outbreak of war in Ukraine has only increased the uncertainty around the global economy.

Surging commodity prices have sent global inflation skyrocketing, and now the talk is of a possible recession for the US and the global economy. While this may be a way off yet, there is now a real possibility of a slowdown.

What comes next?

At present, investors expect The Federal Reserve Bank (Fed) to continue hiking rates throughout the year. But this time around, the FOMC may not move in the measured, 25-basis point fashion that it did during its last hiking cycle, before the COVID-19 pandemic.

This time around, the Fed may have to be more aggressive in its moves. With inflation surging because of oil prices, consumers are feeling the pinch. But this is not the 1970s—the economy is less vulnerable to rising oil prices than it was, although it will still feel its effects.

For now, it looks like the Fed will stick to a progression of 25 basis point increases. If inflation keeps rising, however, that will change.

What does the Fed think about the economic outlook?

Compared to 2021, when rates were not expected to move until 2023, the situation looks very different. Updated economic projections will be issued at this meeting, and we will get a chance to see how the committee views the outlook for the economy and inflation.

This is a highly-fluid situation, so these forecasts may change significantly. Nonetheless, the Fed’s views will be closely-watched by investors.

US dollar outlook

The dollar has enjoyed a substantial rally into March and into the early days of the month. However, it may now be at risk of a short-term decline in the wake of the meeting. The wide gap between the price and the (rising) 50-day DMA at 0.9635 could be filled in the event of a near-term pullback.

Nonetheless, the broader uptrend is still in place, with the latest rally having established a clear higher high. A pullback towards the 50-day simple moving average (SMA) would establish a higher low and leave the uptrend intact.

USD index Source: ProRealTime
USD index Source: ProRealTime

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.

Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Tuesday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.