Author of this article: Yang Aozheng – Chief Chinese Analyst at FXTM 121221June 17, 2021 With the progress of vaccination and the continued economic restart, the Federal Reserve expressed optimism about the US economy at its just-concluded June monetary policy meeting. Economic activity and employment have strengthened, but the sectors hardest hit by the outbreak remain weak, so the central bank left its benchmark policy rate target range unchanged at 0% to 0.25%. The Fed raised its economic growth forecast, raising its GDP growth forecast for 2021 to 7% from 6.5% in March, while keeping its forecast for unemployment this year unchanged. The following are the main highlights of the Fed's statement: 2 interest rate hikes before the end of 2023 The dot plot shows that most Fed officials predict that the first rate hike after the epidemic will be brought forward to 2023, and there will be two rate hikes before the end of 2023, policy The pace of tightening was faster than previously expected and market expectations. The median rate for 2023 points to a 50 basis point hike, and beyond 2023, most Fed officials expect rates to rise to 2.5%. *Image source: Bloomberg (Comparison of the latest dot plots of the Fed in March and June) No major changes in unconventional monetary policy In terms of unconventional monetary policy, the Fed has not released a signal to slow down bond purchases, and has decided to continue at least 800 per month It will increase its holdings of U.S. Treasury bonds at a rate of US$40 billion and purchase mortgage-backed securities at a rate of no less than US$40 billion per month. There is no sign that the scale of bond purchases will be reduced, but the market expects the Fed to make some adjustments before the end of the year. The labor market is still recovering Powell pointed out that the recovery of the labor market still faces some obstacles, including epidemic concerns, demand for childcare, etc. In addition, unemployment benefits have also slowed down the speed at which people return to work. In addition to increasing economic growth expectations, the Fed has also significantly raised its inflation expectations for 2021-2023 due to the recent sharp rise in inflation data. The PCE inflation rate is expected to rise to 3.4% by the end of 2021, which is higher than PCE inflation was higher than the 3 percent published in April, the latest reading, reflecting the Fed's view that inflation will still rise further. However, the Fed continued to emphasize that the rise in inflation was only a transitory factor and did not adjust its longer-term forecasts. The impact of this meeting on the financial market As the Federal Reserve released a very strong "hawk" signal, the three major US stock indexes fell across the board, and the S&P 500 recorded the largest closing decline since May 18. The yield on the 10-year U.S. Treasury rose 8.32 basis points to close at 1.57%. The U.S. dollar index rose sharply by 0.96% yesterday, its biggest one-day gain since June 2020, while non-US currencies fell across the board, and the euro hit its biggest one-day drop this year. The index is getting closer to an important short-term resistance level, and if it can successfully break through, it is expected to have a wave of rebound in the next few days. The U.S. dollar index first needs to break through the downward trend line since March, and then the 200-day moving average. If it can finally stabilize above 91.60, then the next target is 92.45. In the bond market, the 10-year U.S. Treasury yield rebounded more than 10 basis points, rising as high as 1.59% during the session before easing back. In terms of US stocks, the S & P 500 index fell 1.13% after the announcement of the Fed statement, but the decline narrowed to 0.54% at the close. From the chart, we can see that if the S&P 500 continues to pull back, the initial support level is 4188, where the 50-day moving average has been guiding the market upward in recent months. Investors looking for a buying opportunity should wait until the index stabilizes above this level. If they want a more certain signal, they can wait for the index to rise above 4260, advancing to a new record high level.