The Federal Open Market Committee (FOMC) raised rates by 50bp and formally announced its plan for balance sheet reduction. Economists at HSBC believe the US dollar will remain strong.

Fed Chair Powell said two more 50bp hikes could follow 

“The FOMC raised the federal funds target range by 50bp to 0.75-1.00%. The Committee also announced a plan to begin reducing its holdings of Treasury securities and mortgage-backed securities (MBS), i.e., quantitative tightening (QT) or balance sheet reduction, from 1 June onwards.”

“Fed Chair Jerome Powell stressed that 50bp should be ‘on the table at the next two meetings’, (and the FOMC’s next two meetings are scheduled for 14-15 June and 26-27 July), and if inflation were to come under control, the pace of hikes could be slowed to 25bp subsequently.”

“We continue to believe the USD will remain strong. First, the Fed’s attitude towards the appropriate pace of tightening can change if the data warrant it. Secondly, the 50bp pace is likely to be sustained for the next couple of meetings, as per Powell’s remarks. This would outpace many G10 central banks. Third, while USD bears will say the market is aggressively priced for the Fed, the same is true of most G10 central banks. Finally, the USD’s advantage in a slowing global growth environment remains a support.”