Fed to Kick Off Hiking Cycle This Week

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The US Federal Reserve’s two-day meeting commences on 15 March (Washington DC time). Fed Chair Powell has effectively confirmed the central bank will kick off the hiking cycle at this meeting. He has stated he favours an initial 25 basis point hike. This would lift the target range for the federal funds rate from 0.00 0.25% to 0.25-0.50%.

Markets are fully priced for a 25-basis point move at the meeting (priced at 107% at the time of writing). As a result, bond markets may react more to any colour provided in the statement and Powell’s press conference, rather than the rate hike itself.

The first hike from the Fed is a clear demarcation that the era of ultra-easy monetary policy is behind us. Several central banks have already begun hiking rates, including the Bank of England, the Bank of Canada and the Reserve Bank of New Zealand. However, the actions of the Fed have the most significant implications for global financial conditions. Effectively, the Fed sets the most important benchmark interest rate for the world.

Download – 14 March 2022 Weekly economic outlook

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