- The US Federal Reserve decided to raise 75 basis points, heavily influenced by last Friday’s CPI reading, which was 8.6%.
- Fed Chairman Powell doesn’t expect 75 basis point moves to be commonplace; USD/CAD plunged from 1.2995 to 1.2915 in reaction.
- The US central bank expects to cut rates by 40 basis points in 2024.
The USD/CAD is erasing earlier gains after the Federal Reserve released its monetary policy statement and peaked at 1.2995. However, it is plummeting once Federal Reserve Chairman Jerome Powell stated in his press conference that he does not expect 75 basis point moves to be common, but opened the door for it at the July meeting. rates are raised in a range of 50 to 75 basis points. At the time of this writing, USD/CAD is trading in a range of 1.2920-40.
Federal Reserve Chairman Jerome Powell reiterated at the press conference that continued increases are appropriate, noting that the labor market is extremely high and so is inflation. Powell commented that when May inflation surprised to the upside along with rising inflation expectations, the FOMC decided a 75 basis point response was warranted.
FOMC Monetary Policy Statement Summary
The Fed reiterated that it is committed to bringing inflation back to its 2% target. They added that economic activity recovered after the negative impression of the first quarter. In addition, the Fed will continue to reduce its balance sheet, as planned at the May meeting.
The FOMC added that “inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising energy prices, and broader price pressures.”
Also, at the same meeting, the Federal Reserve Open Market Committee (FOMC) released the Summary of Economic Projections (SEP), which showed that the Fed lowered its growth expectations from 2.8% in March to 1.7%, while the unemployment rate would rise to 3.7% from the 3.5% forecast in March.
As for its outlook on inflation, Fed officials estimate core PCE to come in at 4.3%, up from 4.1% forecast in March, while the end-2022 fed funds rate is estimated to be it will rise to 3.4%, 150 basis points higher than the 1.9% expected in March.
It should be noted that the Federal Reserve foresees another 50 basis point hike in 2023, and in 2024 the first rate cut would take place
USD/CAD 1 hour chart
Technical levels
Source: Fx Street
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