The US dollar rose and stock markets fell on Wednesday after another rate hike by the Fed. The regulator raised its forecasts for rates at the end of the year. The dollar index hit 20-year highs above 111.60. Following the meeting on September 20-21, the US Federal Reserve raised the rate by 75 basis points at once, to 3.25% per annum, for the third time in a row. The decision coincided with market expectations. This is the fifth increase since the beginning of the year. The regulator will continue its policy of tightening monetary policy. The Fed is raising rates in response to record inflation in the country, which is at its highest in 40 years. The Fed leadership noted a moderate weakening in spending and production. The situation on the labor market is positive. Inflationary pressures are relevant and have become wider. There is an increase in food and energy prices. The FOMC has downgraded its forecasts for unemployment and GDP growth for 2022-2024, and raised its inflation forecasts. The forecast for the key rate at the end of 2022 has been raised to 4.4%, which is much higher than the June forecast of 3.4%. Fed officials expect to raise rates to 4.6% by the end of 2023 before starting cuts in 2024 and 2025. During a press conference, the head of the Fed, Jerome Powell, said that the regulator is seriously aimed at reducing inflation to a level of 2% and has the tools to do so. Price stability is the responsibility of the Fed. An increase in interest rates in the future is necessary. In Powell’s opinion, at some point it will be justified to raise rates at a less significant pace. This will depend on the incoming economic data. The Fed wants to see hard evidence that inflation is cooling. Probability of a 75bp rate hike to 4% at the next meeting on November 2 rose to 70.5% from 60% a day earlier. Last week Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, predicted a 20% fall in stocks with a key rate increase to 4.5%. At the same time, he does not rule out a further increase in the rate to 6%. Goldman Sachs has predicted a 25% drop in the S&P 500 if monetary tightening in the US pushes unemployment up to 6%. Source: FXPro

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