Economists at TD Securities discuss the Federal Reserve interest rate decision and its implications for EUR/USD and USD/JPY.

Hawkish (25%)

“The FOMC delivers a 50 bps rate hike and the 2023 median SEP dot increases to 5.125% as dovish members shift their projections for the terminal rate higher. Chair Powell calls the recent easing of financial conditions inappropriate and suggests that the Fed may need to increase rates above current market pricing to bring inflation under control. USD/JPY 136.80/00, EUR/USD 1.05.”

Base Case (60%)

“Fed delivers a 50 bps rate hike and the 2023 median dot increases to 4.875% as the Fed continues to stress about inflation that remains too high. Powell maintains the same tone as his remarks at Brookings, suggesting that ‘that ongoing increases in the target range will be appropriate’, leaving the door open to additional 50 bps increases in the future. USD/JPY 134.80, EUR/USD 1.0680.”

Dovish (15%)

“Fed delivers a 50 bps rate hike and the dot plot points to a modest upward shift in the dots for 2023. Chair Powell suggests that inflation may be starting to soften as shelter and goods prices appear to be turning the corner. Powell also reiterates Fed's desire for a soft landing. USD/JPY 133.60, EUR/USD 1.0720.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps