At its two-day meeting which took place on 1 and 2 November 2022, the central bank’s Federal Open Market Committee (FOMC) approved another increase in interest rates by 75 basis points. This increase, announced by the FOMC, means that interest rates now range from 3.75% to 4.00% per annum. The market reaction followed soon after, especially on the international foreign exchange – Forex market, where the exchange value of the American dollar (USD) strengthened again.
On 3 November 2022, at 7:26 am CET, according to the US Dollar Currency Index (DXY) we saw the USD at a price level of 112.12 with a daily growth of +0.70%. Currently, despite the previous decline last week along with the decline at the beginning of the 44th week of 2022, this still represents an annual increase of 19.09%. The change in interest rates, according to the assumption of analysts and financial strategists, also caused a change in the exchange value of the USD against other major world currencies, especially against the single European currency, the euro (EUR). At the time mentioned the global currency pair EUR/USD was trading at US$ 0.981 per EUR, with the EUR down by -0.0511% against the USD so far meaning that the EUR fell below parity even more.
As already mentioned, the FOMC approved the fourth consecutive three-quarter increase in interest rates and at the same time signalled a potential change in the approach to monetary policy with the aim of reducing inflation in the United States. However, financial markets have been expecting this change in interest rates for weeks, especially since this time the FOMC representatives themselves, including the head of the Federal Reserve System (Fed) Jerome Powell, did not hide this intention and publicly talked about further increases, which reached the highest level since January 2008. Financial analysts consider it to be the most aggressive pace of monetary policy tightening since the early 1980s, when inflation last reached this high.
At the press conference after the FOMC meeting on Wednesday, 2 November the head of the Fed, Mr. Powell, expressed – among other things – some pessimism regarding the future. He noted that he now expects the “terminal rate,” or the point at which the Fed stops raising rates, to be higher than it was at the September meeting. With higher rates also comes the prospect that the Fed will not be able to achieve the “soft landing” that Powell has talked about in the past. “Has it narrowed? Yes,” Powell said when asked if the path had narrowed to a place where the economy does not enter a pronounced contraction. “Is it still possible? Yes.” He also said the need for still-higher rates makes the job more difficult. “Policy needs to be more restrictive, and that narrows the path to a soft landing,” Powell said. The Federal Open Market Committee again categorized growth in spending and production as “modest” and noted that “job gains have been robust in recent months” while inflation is “elevated.” The statement also reiterated that the committee is “highly attentive to inflation risks.”