The US Federal Reserve cooled the markets with a forecast of two rate hikes in 2023

As anticipated, the Federal Reserve maintained the rate at 5.25%.

It is predicted by the FOMC that there will be an additional 0.50% rate increase this year.

After hitting three-month lows, the dollar index regained some of its losses.

After the two-day meeting on June 13-14, the US Federal Reserve decided to maintain the key rate at 5-5.25% per annum. This marks a pause in the 10 consecutive rate hikes that had been taking place.

Since June 2022, the Federal Reserve has implemented the most aggressive series of rate hikes since the 1980s in order to combat inflation, which has dropped from a peak of 9.1% to 4% in May.

The FOMC stated that inflation is still high, and they are very aware of the potential for inflation to increase. They suggested that further policy changes may be necessary to bring inflation back to the 2% target in the future.

When deciding how much more to tighten, the regulator will consider the total impact of previous monetary tightening, the time it takes for monetary policy to affect the economy and inflation, as well as economic and financial developments.

Since the March meeting, the regulator has released updated economic projections. The GDP growth outlook for this year has been increased, while the forecast for 2024-2024 has been slightly reduced. The inflation forecast for the current year has been slightly reduced, but the core inflation forecast has been increased.

The forecast for the key rate at the end of 2023 was increased by 0.5% to 5.6%, suggesting two more hikes of 25 b.p. The prediction for 2024 was upped by 0.3% to 4.6%, and for 2025 - also by 0.3%, to 3.4%.

At a press conference, Fed Chairman Jerome Powell stated that nearly all members of the FOMC deem it necessary to increase rates further this year. He also noted that it will take a while to get inflation back to the 2% mark.

Raising rates at a more moderate pace could help to lower inflation, but this may require a below-trend economy and some loosening of labor market conditions.

Powell highlighted PCE core inflation in particular, noting that it has not seen much improvement and needs to be significantly lowered. He stated that the rate is not far from its final level, and thus a rate cut this year would be unnecessary.

The likelihood of a 25bp rate increase at the July gathering increased to 64.5% from 60.3% the day before, and 10.1% four weeks prior.