The Fed unveiled a plan to fight inflation

Most of the members Federal Reserve is in favor of a 50 bp rate hike at several subsequent meetings - results from the recording of talks from May published yesterday evening FOMC meetings, i.e. the body responsible for US financial policy.

In May, the Fed decided to make a hike of just such a scale - 50 basis points, which increased interest rates to 0,75-1%. It was the second increase in the cost of credit in a row, and at the same time the largest one since 2000.

Favorable forecasts 

By raising interest rates, the Fed wants to stem soaring inflation. According to the estimates of the American central bank, it has to be 4,3 percent (measured by the PCE indicator). The Fed lowered its inflation forecasts for the coming years. In 2023, the price dynamics in the USA is to reach 2,5%, and in 2024 - 2,1%.

If the Fed's inflation forecasts are correct, the peak of the cycle of interest rate hikes may fall at 3-3,25%. This is also where the US 10-year bond yields have recently been found, which have now fallen back to around 2,7 percent.

The dollar will stop gaining and the stock markets will stop losing?

Decrease US government bond yields may mean that financial markets, including bonds, stocks or other risky assets, have already discounted the entire cycle of interest rate hikes in the US. This, in turn, may affect the performance of the US dollar or the stock market. In both cases, the recent strong trends, i.e. the appreciation of the USD and declines in stocks, may also slow down or slowly come to an end.

Important reading on Friday

Tomorrow we will know the level of April's core PCE inflation in the US. The market consensus is 4,9%. This would mean a withdrawal from the achieved in February this year. peak at 5,4 percent. Including Therefore, the interest rate market seems unconvinced that such aggressive interest rate hikes in the US, as announced today by FOMC members, will be needed.