The US dollar collapsed after the Fed's rate decision

Immediately after the Fed's rate decision was announced on Wednesday, the dollar experienced a sharp decline.

The United States regulator indicated that the rate hike cycle had come to a close.

At the two-day meeting held on December 12-13, the US Federal Reserve decided to maintain the key rate at 5.25-5.5% per annum, which was in line with expectations.

The rate has been at its highest since January 2001, when it was 6%. The July rate increase was the last, as the Federal Reserve left the rate unchanged in September and November.

In its final statement, the Fed reported that the most recent data indicates a deceleration in economic growth from the robust rate seen in the third quarter. The November release showed that activity was expanding at a rapid rate.

The Federal Reserve observed that “inflation has dropped in the last twelve months, yet still remains elevated,” which is a significant contrast to the language used in November: “inflation remains high.”

Quarterly forecasts from FOMC members have been updated, and for the first time since March 2021, no further rate hikes are anticipated. This is the strongest indication yet that the cycle of interest rate increases in the US has come to an end.

In 2024, the Federal Open Market Committee (FOMC) now anticipates a 0.75% reduction in the key rate, a larger decrease than what was predicted in September. The median rate forecast for the end of 2024 is 4.6%, and 3.6% for the end of 2025.

US Federal Reserve Chairman Jerome Powell said during a press conference that it is unlikely that rates will be raised further. He added that there was a general expectation at the Fed meeting that rate cuts would be discussed in the future.

Powell stated that the Federal Reserve is now concentrating on avoiding the error of maintaining rates too high for an extended period. Nevertheless, core PCE is still above 3%, and further advancement in inflation is necessary.

The Fed chairman cautioned that this situation could necessitate keeping interest rates high for a longer period of time or increasing them once more.

The probability of a rate cut at a meeting in March next year rose from 41.3% the day before to 78.3%, and then further increased to 97.1% in May.