Fed’s Hawkish Pivot impact on : interest rates and the economy
Central banks interest rates announcements have major implications for the economy. This is how this relates to the Fed.
Chair of the Federal Reserve of the United States Jerome Powell has expressed concern that interest rates will rise more rapidly than anticipated by the national bank.
The chairman of the central bank warned of forthcoming tightening of monetary policy in an effort to halt a booming economy, citing statistics from earlier this year suggesting that inflation has reversed the decrease it showed in late 2022.
These comments imply two things: first, that the peak, or terminal, level of the federal funds rate is likely to be higher than the previous indication from Fed officials; and second, that the Fed’s switch last month to a smaller quarter-point increase may be temporary if inflation data continues to run hot.
What this means for traders
With a hawkish monetary policy, interest rates are expected to rise. The term “tightening” is frequently used to indicate the central bank’s efforts to slow the economy down in response to rising inflation.
As interest rates rise in a hawkish scenario, both businesses and individuals find it more costly to borrow money (due to higher interest repayments), reducing both spending and investment.
The foreign exchange market can be dramatically affected by interest rate changes made by any of the world’s most powerful central banks.
The financial markets are highly sensitive to sudden fluctuations in interest rates. If you want to make money, you need to learn how to anticipate and deal with these fluctuations using the analysis tools available from regulated brokers like Khwezi Trade.
Traders might be caught off guard by a central bank’s unexpected rate shift no matter how much they prepare or how many numbers they analyse.
When this occurs, it’s important for a trader to know which way the market will go. The value of a currency rises in response to a rate increase. Buyers will emerge from the trading community. Traders are likely to unload higher-interest-rate currencies and purchase those with lower rates if a rate decrease occurs.
After gauging market direction, a trader must take the following steps:
Move quickly
When a major event occurs, traders race to get in on the action by buying (or selling) before the rest of the crowd. It’s possible to make a lot of money if you just act quickly and plan beforehand.
Check for a trend reversal
Speculators’ assumptions may dominate trading activity immediately following data release, but the underlying trend usually resumes its pre-data course shortly thereafter.
Final thoughts
Forex traders should place a premium on keeping up with the news and studying the behaviour of central banks.
Currency exchange rates fluctuate when central banks set monetary policy for respective regions. Profits can be maximised as currency exchange rates shift in the hands of dealers.
The possibility for profit is not limited to the interest accrued through carry trades, but also includes the real movements in the market. An informed trader can profit from unexpected rate movements by doing their homework. Pay close attention to interest rates and any announcements made by central banks about interest rates.
