As financial markets waited with baited breath, the US Federal Reserve made its much-anticipated monetary policy announcement. The central bank raised interest rates by 50 basis points, as expected, but the accompanying statement was largely unchanged from previous versions. 

The Fed’s Summary of Economic Projections (SEP) showed that the median policy rate for the end of 2023 is now 5.1%, up from 4.6% in September’s SEP. Growth forecasts for 2023 and 2024 have been revised downward, but Personal Consumption Expenditure (PCE) inflation has been revised upward to 3.1% for 2023 and upwardly adjusted for 2024 and 2025.

Fed Chair Jerome Powell made hawkish comments, stating that the ultimate level of interest rates is more important than how quickly they rise and that rates should be held at their peak until policymakers are “really confident” that inflation will come down in a sustained manner. 

Powell also emphasized that the focus is on making monetary policy restrictive enough, not on cutting rates. His comments weighed on US equities, causing indexes to plummet, but the Dollar saw only a brief rise before resuming its decline. US Treasury yields also edged slightly lower after initially ticking upward following the Fed’s announcement.

The Dollar’s weakness was on full display as major currency pairs saw little movement ahead of the announcement. EUR/USD is trading just above the 1.0700 mark, while GBP/USD is at 1.2430. 

The AUD/USD pair briefly touched 0.6800 but has recovered to around 0.6860 ahead of the release of Australian employment figures for November and December Consumer Inflation Expectations. USD/CAD is down to 1.3545, aided by rising oil prices. Gold ended the day largely unchanged at around $1,807 per troy ounce.

On Thursday, attention will turn to the monetary policy decisions of the Bank of England and the European Central Bank. Meanwhile, markets will continue to digest the implications of the Fed’s announcement and Powell’s hawkish comments. 

The Dollar’s weakness has some speculating about the potential for a shift in the global currency market, with the Euro and other currencies potentially positioning themselves for a greater role on the world stage. 

Only time will tell how these events will play out, but one thing is certain: the Federal Reserve’s monetary policy decision has sent shockwaves through the financial world and will continue to be a major focus for markets in the coming weeks and months.