The dollar is losing, the stock markets are gaining - the state after the Fed's decision

The Federal Reserve raised interest rates by 50 basis points from 0,25-0,5 percent. up to 0,75-1,00 percent Jerome Powell, Fed chairman also announced further increases, but - according to announcements - their scale does not match the market expectations. This may translate into declines in USD quotations.

The Federal Reserve made the second hike in a row interest rates in the cycle. The first one, from a month ago, had a scale of 25 basis points. Yesterday's move, twice as high, last happened 22 years ago. Nevertheless, slight disappointment seems to dominate the market reactions. Why?

Investors could expect a more predatory face of the Fed

Jerome Powell, Fed chairman, announced a rate hike of 50 basis points at several next meetings. Meanwhile, some market participants may have been concerned about movements by 75 basis points. Yesterday it turned out that they will not be so violent.

The Fed also announced a $ 9 trillion in asset cut on the balance sheet from June 1. The plan will start with the monthly withdrawal of $ 30 billion in treasuries and $ 17,5 billion in mortgage-backed securities for 3 months. Thereafter, activities will intensify to $ 95 billion per month. Here, too, the market received a kind of gift in the form of the lack of an immediate reduction of the balance sheet by USD 95 billion.

Overall, US interest rates have already risen by 75bp to fight soaring inflation. Fed decision-makers emphasized that Russia's invasion of Ukraine and the events related to it would put additional pressure on inflation in the US, and would probably also affect economic activity. The US central bank, however, sees no reason to fear a recession. On the contrary, the US economy is supposed to be strong enough not to need much support from loose monetary policy.

Is the dollar starting to fall from the top?

A pigeon hike in interest rates could satisfy investors. The session on Wall Street was green, and the index S & P 500 had the best session since May 2020, and Dow Jones since November 2020.

The US dollar, in turn, seemed to weaken after the Fed's decision, and yields were also falling American bonds. Is this an announcement that the boom is returning to the stock markets and the US dollar has already reached its peak? Opinions can be divided here.