A meeting of the US Federal Reserve System (Fed) key governing body – the Federal Open Market Committee (FOMC) – the only body authorized to decide on interest rates in the United States – took place on 16 and 17 March 2021 in Washington, DC. During this traditional two-day meeting it was decided that current interest rates ranging from 0.00 to 0.25% p.a. would be left unchanged.
Based on this decision, the reaction of the foreign exchange–Forex market was reflected only in a short-term slight decline in the exchange rate of the USD against other major world currencies, but even before midnight stateside the USD exchange rate strengthened again. On 18 March at 7:21 am CET, the US Dollar Currency Index (DXY) – which compares the exchange rate of the USD against the other six major world currencies – was seen at the price level of 91.46 gaining +0.02%. This strengthening trend of the USD exchange value was also reflected in the Forex trades of the global currency pair EUR/USD, where it traded at a mutual exchange rate of US$ 1,197 per EUR with the current daily decrease of the EUR by -0.075% against the USD.
US central bankers, while maintaining the current level of bank rates, have also left the volume of government bond buyouts unchanged at US$ 120 billion per month. However, according to CNBC economic correspondents, the key changes have occurred in how the Fed’s FOMC perceive the economic way forward and how it may affect US policy. “Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2 percent,” it was stated in a statement after the FOMC meeting. According to FOMC members’ economic projections Gross domestic product (GDP) in the US is expected to grow by 6.5% in 2021, before cooling off in later years. The GBP growth forecasts for 2022 and 2023 are 3.3% and 2.2%, respectively before it settles – in the longer term – to around 2.3%.
Despite improving outlook the FOMC still expects interest rates to remain unchanged until 2023. Fed President Jerome Powell said he expected inflation to rise this year, partly due to a slight year-on-year comparison since the start of the Covid-19 pandemic in early 2020. However, he said it would not be enough to change policies aimed at inflation above 2% for a period of time if it helps to achieve full and inclusive employment. “I would note that a transitory rise in inflation above 2% as seems likely to occur this year would not meet this standard,” said Powell. In response to these announcements from the FOMC meeting, the US financial markets, with minor volatile exceptions, have not yet responded with a sharp change in the business trend. According to analysts, only the development of other events combined with the effects of the FOMC decision may change the attitude of investors and investment sentiment on the global financial market. However it is already clear that this situation has significantly increased interest in the bond market.
