USD will strengthen or weaken?
The FED is scheduled to announce the results of the (FOMC) meeting at 2.00 am later. But what is the question mark what the results will be announced?
Market sentiment is currently mixed. Almost the majority of economic analysts of global financial institutions expect the FED to most likely announce a temporary stop (pause) of interest rate hikes early in the morning.
This is because they think that if the FED continues to raise interest rates, it will have a worse impact on the country's commercial banking industry.
Although FED chairman Jerome Powell and Treasury Secretary Janet Yellen have expressed their view at the last media conference that "Bank Collapse" occurred due to the failure of the banking system itself.
In addition, they also believe that a 25 basis point increase will only have a small impact on inflation control, but it will have a large impact on the country's financial banking industry.
SURVEY OF MARKETS
We believe the FED is expected to raise interest rates by at least 25 basis points early in the morning. But what we are focusing on is the report of the FOMC meeting which will also be announced on the direction of the "end" of interest rate hikes.
Based on the results of the survey data above, more than 92.00% probability for the FED to increase interest rates.
DIRECTION OF INTEREST RATE INCREASE
Our analysis is of the opinion that the FED is expected to halt interest rate hikes starting in June 2023. And indirectly, the interest rate hike early this morning is the last hike in 2023.
However, at this time, the United States' recorded inflation rate is 5.0%, which is far from the FED's main goal of lowering inflation to 2.0%. Whether it will be the last interest rate hike in 2023 or not will depend on the new inflation rate data to come.
Among the main reasons the FED will stop raising interest rates in June 2023 are based on two main factors, namely:
1. Money Supply (National Financial Supply)
Money supply is the amount of currency and assets that have been liquidated in the economy including in the form of cash.
The interest rate increase that has been done by the FED has started since March 16, 2023, which is 50 basis points. Until now the total interest rate increase that has been done by the FED is 5.00%. By raising interest rates, it has been proven to be able to fight inflation, but at the same time, the country's money supply will also be affected.
The U.S. money supply trend has decreased by -4.24% YoY since the interest rate hike was done in March 2022.
2. Debt limit (National Debt Ceiling Limit)
The debt issue in the U.S. is getting worse, the rapidly shrinking money supply has had an impact on the country's debt limit. In February earlier this year, Janet Yellen had urged the nation's congress to raise the nation's debt ceiling. But until now the national congress has not agreed to raise the debt limit.
Earlier this week, Monday, Janet Yellen officially announced that the U.S. will reach the limit in June 2023 if there is still no action taken by congress.
The cost of debt has skyrocketed since March 2022.
DOLLAR INDEX REVIEW
The reaction of the dollar market is expected to interact with the price level stated above. If the interest rate hike is done early in the morning, it is expected to increase the demand for the dollar index in the market this week after the interest rate decision is announced and strengthen the dollar.
