The Fed launched what is set to be its most aggressive rate hike since the mid-2000s. According to Fed Chairman Jerome Powell, inflation is too high and the labor market is overheated, so price stability is now the central bank's top priority. He is assured though that the fight against inflation will not lead to a recession in the US economy.
"As I looked around the table at today's meeting, I saw a committee that's acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that," Powell said. "The US economy is very strong and well positioned to handle tighter monetary policy," he added.
Officials voted 8-1 to raise the main interest rate to 0.25% - 0.5%, after two years of keeping the cost of borrowing near zero.
In his statements, Powell repeatedly downplayed the risk of a recession, emphasizing that the economy is very strong and all it lacks right now is price stability. He also stressed the almost unanimous support of the committee, which takes inflation control very seriously and is ready to raise rates even faster if necessary.
With regards to the labor market, Powell said it grew sharply in the first quarter of this year, with employers adding more than 1 million jobs in just the first two months. However, that has a negative impact on inflation, as a large number of vacancies allows qualified personnel to seek more attractive jobs, forcing employers to raise wages to attract and retain specialists. Strong demand among the population also contributed to the rise in prices, pushing it to 7.9%, which is much higher than the target 2%.
Powell made it clear that unless inflation starts to come down, the committee will begin to raise rates aggressively. "There is a mismatch between supply and demand, especially in the labor market, and this is causing wages to rise, which is not in line with the 2 percent inflation target," Powell said.
Technical analysis of EUR/USD
Bulls have broken through 1.1000 and are now aiming at 1.1060. Since geopolitical tensions in Ukraine eased a little and the Fed meeting went smoothly, EUR/USD has a chance of rising to 1.1120 and 1.1165 after overcoming 1.1060. But if the pair decreases under 1.1020, the quote will dip to 1.0960.
The Bank of England meeting scheduled for today could lead to a surge in risk appetite, provided that the regulator takes a more aggressive approach on monetary policy.
Technical analysis of GBP/USD
A lot depends on 1.3190 because a breakdown could lead to a jump to 1.3240 and 1.3275. Meanwhile, a dip below 1.3120 will result in a further fall to 1.3080, 1.3030 and 1.2970.
