Late at night! The Federal Reserve announced a quarter-point interest rate hike
May 4, 2023
The US Federal Reserve announced on May 3 that it raised the target range of the federal funds rate by 25 basis points to 5% to 5.25% at the end of its two-day monetary policy meeting, in line with market expectations. This is the 10th time in a row that the Fed has raised interest rates by 500 basis points.
The banking crisis continues
The latest data from the Labour department showed the consumer price index rose 5 per cent in March from a year earlier, down from the previous reading but still above the Fed's 2 per cent target. As interest rates rise to curb inflation, the brakes are also applied to the US economy. Data released by the US Commerce Department recently showed that the US real GDP grew at an annualized rate of 1.1% in the first quarter of this year, significantly lower than the 2.6% growth in the fourth quarter of last year and below market expectations. Meanwhile, the banking crisis in the United States continues to grow, with Bank of America becoming the third bank to fail in two months this week.
Expectations are that the Fed could start cutting rates as early as September
The market is now closely watching when the Fed will turn to monetary easing. The 25 basis point rise is expected to be followed by a pause before the Fed starts cutting rates as early as September, according to Cme's FedWatch tool.
Dollar shorts have increased sharply recently
Investors are already shorting the dollar. Hedge funds and other large institutional investors increased their net short position in the U.S. dollar against other major currencies to more than 70,000 contracts as of April 25, the highest since June 2021, Bloomberg reported, citing data from the U.S. Commodity Futures Trading Commission.
