The Fed Keeps Its Short-Term Rate Steady
The Federal Reserve concluded its first meeting in 2019 and kept its target between 2.25 and 2.5 percent. Over the last year, the Fed and the markets have been battling over the path of interest rate hikes. On one side, the Fed has cited strong economic growth and made its case for three hikes in 2019, but the market had another opinion.
Back in December the markets signaled one rate hike at best in 2019 and so far, its projection is turning out to be more accurate. In this week’s meeting, Powell indicated that the Fed would be more patient before tightening monetary policy.
Now the market is going a step further and signaling not only a more patient Fed, but a rate decrease in 2020.
The increase in the fed funds rate has caused the dollar to strengthen. In the short-run, all else equal, investors will gravitate towards countries with higher rates. That means selling foreign currency for U.S. dollars, which has helped increase the price. However, now with the dovish tone from Powell and market expectations on future rates, the dollar is headed in the other direction.
The strong dollar has been a headwind to international investments, but with the upward direction of the greenback in question, it could turn into a tailwind. We will continue to closely watch what the Fed indicates vs. what the markets expects from the Fed.