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21 March 2024 | FXGT.com

US Stocks Rally as Dollar Dips After Fed Signals Dovish Outlook

  • Dollar Weakens After Fed Meeting: The dollar experienced a broad decline as the U.S. Federal Reserve upheld its projections for interest rate cuts throughout the year, despite unexpected high inflation figures. The Fed’s stance was less hawkish than some had anticipated.
  • Wall Street Rallies on Fed’s Rate Decision: Wall Street’s major stock indexes experienced a significant rally following Fed Chair Jerome Powell’s remarks during the press conference. He recognized the high inflation data but reassured that it does not change the central bank’s trajectory towards gradually reducing inflation, soothing investor concerns over any deviation from the Fed’s dovish stance since December.
  • Fed’s Rate Cut Outlook: Fed Chair Jerome Powell’s comments emphasized the expectation of gradually easing price pressures in the U.S., maintaining the forecast for three rate cuts this year. This outlook led traders to increase bets for a Fed rate cut in June, with market odds now at 74%.
  • Inflation Forecasts Adjusted: The Fed’s updated forecasts show a slight increase in the core personal consumption expenditures (PCE) price index to 2.6% by the end of the year, from December’s 2.4% prediction.
  • Economic Outlook Adjusted: The Fed updated its economic projections, signalling improved growth expectations for the year and a slight decrease in the unemployment rate forecast compared to its December estimates.
  • Fed’s Long-Term Rate Expectations: Analysis of the Fed’s projections reveals a slight increase in long-term rate expectations, with the median long-term rate forecast edging from 2.5% to 2.6%. Notably, the number of policymakers projecting a long-run rate of 3% or above has increased.
  • Market’s Dovish Interpretation Outweighs Hawkish Hints: Despite some hawkish hints from the Fed, including an upward revision of the long-run equilibrium rate, markets focused on the short-term dovish signals. The anticipation of an easing cycle and the approach of quantitative tightening’s slowdown were key highlights.
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