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FOMC surprise traders with 3 rate hikes in 2017

FOMC surprise traders with 3 rate hikes in 2017

The U.S dollar soared Thursday after the Federal Open Market Committee (FOMC) announced the widely-expected interest rate hike at their meeting yesterday by 25 basis points. This was no surprise, so what actually led to the market reaction?

 

Hawkish 2017 Forecast

The Federal Reserve surprised everyone by changing their tune to a more hawkish beat. The "dot plot" which had so far indicated 2 expected interest rate hikes in 2017, now seems to be leaning towards 3 rate hikes. Out of 17 participants, 4 changed their dot plot from 2 to 3 hikes. The Fed had always claimed to base decisions on hard market data, yet this change in attitude at least from those 4, is largely accredited to their belief that economics under Trump will justify such movements.

 

The USD's reaction

The greenback shot up to nearly a 14-year high against a host of major currencies, as shown by the dollar index which placed it at a high of roughly 103.560. The announcement of a faster than expected rate of interest rate raises caught traders by surprise and sent them into action.

In addition to the FOMC's step, analysts accredited the Dollar's move to the economic plans put forth by the new president-elect's administration which include infrastructure spending as a fiscal stimulus. 

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