Experts agree: Fed will follow monetary tightening path even beyond September meeting
- The US Dollar trades higher against its currency peers ahead of the Fed’s monetary policy announcement.
- The Fed is highly anticipated to hike interest rates on Wednesday.
- Market experts seem to agree on a fresh repricing of the Fed’s interest rate expectations.
The US Dollar (USD) outperforms its major currency peers on Tuesday, following strong United States (US) Treasury Yields on expectations that the Federal Reserve (Fed) will remain on the monetary tightening path even after hiking interest rates at the policy meeting on Wednesday.
At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.16% higher to near 99.62. 10-year US Treasury Yields hit record highs at 5.04%, the highest level seen in the last 19 years.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.12% | 0.33% | 0.12% | 0.14% | 0.25% | 0.08% | |
| EUR | -0.08% | 0.04% | 0.21% | 0.06% | 0.05% | 0.15% | -0.00% | |
| GBP | -0.12% | -0.04% | 0.17% | -0.02% | 0.01% | 0.09% | -0.04% | |
| JPY | -0.33% | -0.21% | -0.17% | -0.19% | -0.17% | -0.08% | -0.23% | |
| CAD | -0.12% | -0.06% | 0.02% | 0.19% | 0.02% | 0.12% | -0.04% | |
| AUD | -0.14% | -0.05% | -0.01% | 0.17% | -0.02% | 0.10% | -0.07% | |
| NZD | -0.25% | -0.15% | -0.09% | 0.08% | -0.12% | -0.10% | -0.14% | |
| CHF | -0.08% | 0.00% | 0.04% | 0.23% | 0.04% | 0.07% | 0.14% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
According to the CME FedWatch tool, the odds of the Fed hiking interest rates by 25 basis points (bps) to 3.75%-4.00% on Wednesday are 92.5%. The tool also shows a 78.65% chance that the Fed will deliver at least two interest rate hikes within this year.
On Wednesday, the Fed is highly anticipated to hike interest rates as the US Producer Price Index (PPI) report for August showed faster-than-expected growth in inflation at the wholesale level, and the US Consumer Price Index (CPI) report for the same month revealed signs of sticky consumer inflation.
Meanwhile, financial market experts have repriced Fed interest rate expectations for the near and medium term, seeing more hikes this year and in 2027 as well on the back of elevated inflationary pressures.
Strategists at BNY said, “While we expect a hike this week, and probably one more this year, we think the path to even higher policy rates is strewn with potential impediments to significantly tighter policy.” In their view, “the nearly 100bp of hikes (equivalent to four hikes of the standard 25bp increment) currently priced in will be realized.”
Analysts at MUFG also observed that the latest repricing in the US rates market has turned notably more hawkish, with investors now anticipating a meaningful policy reversal from the Fed over the coming year. They highlight that “the US rate market now expects the Fed to deliver almost 100bps of hikes in the year ahead fully reversing last year’s rate cuts that totalled 75bps,” underscoring how quickly expectations have swung back toward renewed tightening.
Similarly, analysts at Danske Bank note that the recent repricing of the Fed’s policy path has led them to revise their terminal rate expectations modestly higher. The bank now “maintain[s] our forecast for 25bp increases at both the December and March meetings, taking the Fed Funds rate to 4.25-4.50% towards the end of 2027 (prior: 4.00-4.25%).” Danske Bank highlights that this adjustment reflects a slightly more hawkish trajectory than previously assumed, while still envisaging a gradual path for policy tightening over the coming years.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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