Fed Lifts Rate By 50 Bps And Raises Rate Projection For 2023

Key Insights

• Fed raised the rate to 4.5%, in line with the analyst consensus. 
• Fed increased the interest rate projection for 2023 to 5.1%. 
• Traders rushed out of riskier assets after the release of the Fed’s statement and economic projections. 

Traders Focus On Economic Projections

On December 14, Fed released its Interest Rate Decision, raising the rate by 50 bps to 4.5%, in line with the analyst consensus.

The Fed noted that “ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

There were no surprises in the Fed statement, and traders focused on Fed’s economic projections for the next year.

The Fed expects that Unemployment Rate will reach 4.6% in 2023, compared to September projection of 4.4%. Change in real GDP is expected to be just 0.5% next year, compared to the previous estimate of 1.2%.

PCE inflation is expected to decline to 3.1% in 2023, compared to previous projection of 2.8%. Importantly, the median federal funds rate projection for 2023 is 5.1%, compared to September projection of 4.6%. The Fed expects that the federal funds rate will decline to 4.1% in 2024 and will reach 3.1% in 2025.

Markets React To The Fed Decision

S&P 500 gained downside momentum and moved towards the 4000 level after the release of Fed’s statement and economic projections. Traders focused on the outlook for the federal funds rate. It looks that the Fed may be more hawkish than traders expected.

U.S. Dollar Index received support and rebounded towards the 104 level. Treasury yields moved higher as the Fed indicated that it may raise rates above the 5.0% level in 2023.

Gold pulled back below the $1800 level as higher yields and stronger dollar are bearish for precious metals.

Bitcoin moved back below the $18,000 level as traders rushed out of riskier assets.

Traders should note that Powell’s press conference starts soon, and markets will react to the words of Fed’s Chair. The market mood may change quickly, so traders should be prepared for fast moves.

For a look at all of today’s economic events, check out our economic calendar.