The Federal Reserve raised interest rates for the first time in over three years on September 16, and the dollar posted its best weekly performance since June on the back of it. Futures markets now price an 87% chance of another hike by December, a bet that is expected to widen the rate gap between the US and its major trading partners further if it lands.
The Federal Reserve's rate-setting committee voted unanimously to raise the federal funds rate by 25 basis points, pushing the target range to 3.75–4.00%. It was the first increase in more than three years, and new Fed Chair Kevin Warsh signaled the committee is not done tightening.
Fed signals more hikes are coming
According to Crypto Briefing: Warsh described the move as removing "a dose of accommodation". The FOMC's updated dot plot showed most policymakers expect at least one more increase before the year is out, with elevated rates projected to persist well into 2027. The unanimous vote signaled internal consensus at a moment when markets were watching for direction from Warsh's first major policy move as chair.
Dollar notches its strongest week since June
The reaction in currency markets was immediate. The Bloomberg Dollar Spot Index climbed roughly 1.1% in the week through September 18, its strongest weekly showing since June, as higher interest rates made dollar-denominated assets more attractive relative to alternatives in Europe, Japan, and emerging markets. Analysts at JPMorgan, Standard Chartered, and Brown Brothers Harriman pointed to the same dynamic: the rate hike, combined with improving US growth data, removed several barriers that had been capping dollar appreciation.
Policy gap with Europe and Japan set to widen
The European Central Bank and Bank of Japan have been operating under different inflation and growth conditions, leaving their policy rates well below the Fed's new range. That gap is now expected to widen further if December brings another rate hike.
Treasury yields climb, emerging markets exposed
Fixed-income markets adjusted in real time: Treasury yields moved higher across the curve following the decision, and further hikes could keep pressuring bond prices. Emerging-market economies are particularly exposed to the combination of a stronger dollar index and rising US rates, since dollar-denominated debt becomes more expensive to service just as external financing conditions tighten.
Source: Crypto Briefing
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