Risk Assessment – Fed’s Interest Rate News Changes the Landscape

Justin Freeman

Toy Blocks which read RISK, with a toy crane and toy man

Given that the US Federal Reserve’s primary function is to bring stability to the markets, its statement that it is “talking about, talking about” a change of monetary policy could appear an appropriate opening gambit. It was never going to be easy delivering bad news to markets that have been feeding off cheap money for years.

The key comments coming out of Wednesday’s FOMC meeting related to news that interest rate hikes are likely to be coming into place sooner than previously expected. Chair of the Fed, Jerome Powell, may still be talking about rate hikes that are more than 12 months away, but many investors were left scratching their heads. The language used suggested Powell was trying to let the markets down gently, but Wednesday’s news was not what was expected. Until this week, the Fed had repeatedly described inflationary pressure as “transitory”, and major risk-in assets fell in price thanks to the change of stance.

Major equity indices plummeted on the back of the official release of the latest monetary statement. Thanks to Jerome Powell’s conciliatory tone at the post-statement press conference, they did recover some ground soon after.

The Dow Jones Industrial Average index closed the day down 0.8%. The S&P 500 index was down 0.5%, and the Nasdaq Composite index gave up 0.2% of value.

Precious metals also posted significant losses. Silver has fallen almost 4% in value and on Thursday morning is now testing the critical support level of the 13th of May low of 2672. Similarly, gold has given up 3.2% of value and continued its price slide overnight.

Silver 4H Price Chart

Silver 4H Price Chart showing a price drop

Source: IG

Gold 4H Price Chart

Gold 4H Price Chart Showing Fall in Price

Source: IG

The precious metal and treasury markets could be the ones to watch as they can offer a clearer indication of long-term market mood. The knee-jerk reactions from equity markets sometimes come down to factors other than economic fundamentals.

It’s now down to investors and analysts to consider the details of the FOMC meeting minutes to fully understand the likely pace of change – although the direction of travel is left in no doubt.

One key element of the official statement for the last 12 months has been its opening statement:

“The Covid-19 pandemic is causing tremendous human and economic hardship across the United States and around the world.”

That’s now gone and has been replaced with the much more upbeat suggestion that the recovery is confirmed to be in progress.

“Progress on vaccinations has reduced the spread of Covid-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened.” Source: US Federal Reserve

The voting patterns among FOMC representatives suggest the committee is agreed on what they want to happen, but not on how to get there. Given the unprecedented events of the last 14 months, that’s not surprising, but the uncertainty looks set to play a role through the summer.

If you want to know more about this topic or have been scammed by a fraudulent broker, please contact us at [email protected]


Justin Freeman

Latest news

Forex vs Crypto: What’s Better For Beginner Traders?
The crypto and forex markets are two of the world’s most popular among investors and traders. Read more
Three Great Technical Analysis Tools for Forex Trading
You don’t have to be very technical minded to make use of technical analysis in your forex trading. Read more

Safest Forex Brokers 2024

Broker Info Best In Customer Satisfaction Score
#1 73% of retail CFD accounts lose money. Founded: 2014 Global Forex & CFD Broker
Number One Broker
Best Trading Conditions Visit broker
4.9
#2 Blackbull LogoYour capital is at risk Founded: 2014 Global Forex Broker
Number One Broker
BEST SPREADS Visit broker
4.8
#3 AvaTrade LogoYour capital is at risk Founded: 2006 Globally regulated broker
Number One Broker
BEST CUSTOMER SUPPORT Visit broker
4.9
#4 plus500 logo81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Founded: 2008 Global CFD Provider
Number One Broker
Best Trading App Visit broker
5
#5 Between 74-89 % of retail investor accounts lose money when trading CFDs Founded: 2010 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
4.9
#6 Forex Broker eToro Logo76% of CFD traders lose money Founded: 2007 Global CFD & FX Broker
Number One Broker
ALL-INCLUSIVE TRADING PLATFORM Visit broker
4.9
#7 XM LogoYour capital is at risk Founded: 2009, 2015 and 2017 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
5
#8 FxPro LogoYour capital is at risk Founded: 2006 CFD and Cryptocurrency Broker
Number One Broker
CFD and Cryptocurrency Visit broker

    Forex Fraud Certified Brokers

    FxPro logo
    XM Logo
    eToro Logo
    AvaTrade logo
    BlackBull Logo Small
    FXTM Logo
    plus500 logo
    CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.