22.09.201701:00 Forex Analysis & Reviews: The Fed is moving resolutely towards the normalization of monetary policy

The Fed managed to surprise investors who already believed that the regulator could refuse on the back of a lack of growth in consumer inflation to 2.0% of the third this year's interest rate hikes. But that did not happen. The US Central Bank not only preserved all its plans to strive for the normalization of monetary policy but also showed perseverance, which manifested itself in the rather tough content of the resolution following the meeting, as well as in the press conference of the bank's CEO J. Yellen confirming these plans.

According to a new forecast, the Fed expects the third this year to raise interest rates at the December meeting. According to the presented forecasts, the level of rates for federal funds is planned at the end of 2018 to 2.1%, according to the results of 2019, their growth is up to 2.7%, and by the end of 2020 to 2.9%.

With regard to the likely dynamics of consumer inflation, it is expected that core inflation will be at 1.5% in 2017, 1.9% in 2018, 2.0% in 2019, and 2.0% in 2020. Despite the lowering of the inflation forecast, the general tone of the statement was optimistic and pointed to the preservation of positive inflationary expectations.

The regulator positively noted the state of the economy and especially the labor market, believing that the "mysterious" low inflation will gradually grow due to actual full employment. Based on its views, the Fed predicts a higher level of GDP this year, expecting it to rise by 2.4%, 2.1% in 2018, 2.0% in 2019 and 1.8% in 2020.

Special attention was paid to the consequences of the impact on the economy of hurricanes "Harvey", "Irma" and "Maria". According to the Central Bank, they will affect economic activity only in the short term.

It is also important that in his speech after the meeting, J. Yellen, the head of the US Central Bank, in fact fully confirmed everything that was reported in the resolution of the bank.

Another significant news that everyone expected was a message about the decision to begin cutting the bank's balance sheet from October to $ 10 billion a month until the new year. Then this amount will be revised. Also important is Yellen's statement that the bank will refuse these measures only in the extreme case of deterioration of the situation in the country's economy.

In general, following the results of the meeting, we can say that the US dollar will receive a gradual support not only thanks to an increase in expectations for growth rates in December, but also the beginning of the process of reducing the balance. In this situation, the most vulnerable currencies against the "American" will be the currencies of emerging economies, including the Russian ruble, as well as the euro and the yen. It is unlikely that the ECB and the Central Bank of Japan will decide in the near future to completely abandon measures to support the economy.

Forecast of the day:

The EUR/USD pair will be traded in the range of 1.1880-1.2050. The main moves for the pair will begin already on Monday following the election of the Chancellor in Germany.

The EUR/GBP pair is consolidating above the level of 0.8800. The pair may also continue to decline to 0.8740 after the breakthrough of this mark already following the results of the elections in Germany.