The central bank of the USA, denoted by the abbreviation FED, kept interest rates at a stable level, after deliberations at its regular meeting of the bank’s key body, the Federal Open Market Committee (FOMC), which was traditionally held as a two-day meeting from Tuesday 19.9. until Wednesday 20.9.2023. After this, the head of the FED, Mr. Jerome Powell, announced this decision at a press conference, but at the same time indicated that he still expects one more increase by the end of this year, 2023, and in the next year, 2024, there will be less reduction than previously stated, and interest rates will therefore be longer will remain high for a long time.
This decision understandably had an impact on the business trends of the financial markets and in particular on the yields of US government bonds (US Bonds) and the exchange value of the US dollar (USD) within the forex operations of the foreign exchange market. Currently, during the European Thursday morning on 9/21/2023, at approximately 7:28 CET, the yields of all US government bonds were in a bull market trading trend, and both the two-year and three-year US bonds exceeded the threshold of five percent of the annual yield on these bonds and the 10-year The US Bond traded at a yield of 4.431% per annum, up +8.4 basis points for the day. The exchange value of the USD measured by the dollar index DXY (US Dollar Currency Index) on the indicated day and time by the previous daily point increase of + 0.38% of the point value at 105.56 USD points. This was also the case when trading the most widespread currency pair of the single European currency, the Euro (EUR) and the US Dollar (USD), when their mutual exchange rate was at 1,063 USD per EUR, with a daily decrease of EUR -0.235% of the rate AMERICAN DOLLAR.
Along with the interest rate projections of the Federal Reserve System, as the central bank of the USA FED (Federal Reserve System), this meeting of the FOMC (Federal Open Market Committee) sharply revised its economic growth expectations for this year 2023, now expecting that the gross domestic product (GDP) in the US will grow by 2.1 percent this year in 2023. This was more than double the June estimate and indicates that members do not expect a recession anytime soon. The 2024 outlook for United States of America (US) gross domestic product (GDP) from the perspective of central bankers as members of the Federal Reserve System’s Federal Open Market Committee (FOMC) increased to an estimated volume of 1.5% growth from the originally estimated 1.1 percent. In addition to the FOMC holding Fed rates at relatively high levels, US central banks continue to reduce their holdings of Fed bonds, a process that will reduce the balance sheet of the United States Federal Reserve System by approximately $815 billion as of June 2022.
Taking a longer-term view, FOMC members pointed to a funds rate of 2.9% in 2026. That’s above what the Fed considers a “neutral” interest rate, which is neither stimulative nor restrictive to growth. It was the first time he provided a view to 2026. The long-term expected neutral rate was held at 2.5%. “Chairman Powell and the Fed sent a clearly hawkish message higher for longer at today’s FOMC meeting,” wrote Citi Group economist Andrew Hollenhorst. “The Fed predicts that inflation will gradually cool while the labor market remains historically tight. But in our view, persistent labor market imbalances are more likely to keep inflation “stuck” above target,” said this economist from the City group banking group. However, according to economic correspondents, the current so-called level of stable interest rates in the US ranging from 5.25 to 5.5% p.a. most participants in the financial markets perceive positively in relation to the USD, which is also evidenced by the current investor mood, which, of course, already sounds negative for European markets and the euro currency (EUR).