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US Interest Rate Slowdown?
2022-02-28 • Updated
The US Federal Reserve may refrain from more aggressive interest rate hikes in March due to geopolitical risks after Russia's special operation in Ukraine.
Fed officials, who would still like to begin the process of cutting easy monetary policies caused by COVID-19, say they are monitoring every impact of the conflict on the US economic activity. Since the pandemic started, the central bank has kept its interest rate near zero, so now high inflation in the US has implied that the Fed is likely to normalize it quicker. Earlier in August, St. Louis Fed President Jim Bullard declared that he would support a double rate hike (0.50%) for the next Fed meeting in mid-March. In fact, the Fed has not raised interest rates by more than 0.25% since 2000.
However, economists say the progressing situation in Ukraine brings plenty of doubts in a global recovery the same as the coronavirus issue. Disruptions in Russian oil and gas supplies are pushing up energy prices, and Ukraine's struggling economy is already impacting outcomes and growth across the continent.
In addition, the US Dollar Index can be impacted in any case, whether it’s a coronavirus issue or Ukrainian conflict. The US Dollar Index (USDX) is a measure of the US dollar value against a basket of currencies from most of the US's most important trading partners.
Since November 2021 this index has been fluctuating a lot, the lowest level was 94,540, the highest was 97,465. Most likely, it will continue to move up and down.
Now the resistance level is on 97.750, the support is on 96.500.
Some releases influence US Index and USD a lot, which can provoke unexpected fluctuations. There are several of them:
- Fed Chair Powell statement on March 2-3
- Unemployment rate and NFP releases on March 4
- Monthly CPI on March 10
- Monthly PPI on March 15
Still, the inflation rate in the US is 7.5%, which is the highest in 40 years. If the Fed slows down the interest rate rise, it can lead to consequences which are difficult to correct.
The US dollar index rose to 105.40 after the Fed’s 75-basis-point key rate hike, while the stock and the crypto markets fell. However, during the past few days, investors and traders returned to risk assets as they expect inflation growth to slow. Moreover, Jerome Powell, the head of the Federal Reserve, announced the Fed might start cutting the key rate by 2024, which is the most evident hint of an upcoming market reversal.
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