A hawkish surprise from the FOMC meeting last night has caused a stir across major markets. The potential for two rate hikes now in 2023 is a big shift on the committee. There is a decisive move on the US dollar underway. 

  • Nothing changed on the FOMC statement.

  • The hawkish surprise came in the economic projections and dot plots.

  • USD has strengthened and this is impacting across major markets.


Nothing of note in the FOMC statement

There was very little to take notice of in the statement. All monetary policy was on hold. The Fed Funds rate of 0.0% to 0.25% stayed the same, as did the monthly asset purchases totalling $120bn. This was all expected.

In fact the statement barely changed at all. See the changes below (curtousy of Newsquawk).

 FOMC statement


Economic projections show the hawkish surprises

The big surprises came in the economic projection materials and dot plots. The economic projections material shows the Fed massively upwardly revising growth and inflation expectations for 2021. Additionally, whilst the moderation of inflation next year is still there, the unwind is now expected to settle above 2.0%. Averaging above 2% is one of the pre-conditions for raising interest rates.

FOMC economic projections June 2021

At the bottom, we also highlight in red the big hawkish shift in rate expectations for 2023. A potential increase of +0.5% is two quarter per cent rate hikes.

Dot plots show a key shift in view is forming

Now let’s look at those dots in more detail. The median rate expectation is highlighted in yellow. The 2023 view is now +0.50 basis points (or 2 quarter per cent rate hikes) up from the March view.

FOMC dot plots June 2021Although we do not know who the dots refer to and whether they will be voters in 2023, as many as 5 Fed members are looking for at least 4 hikes, and 2 members are looking for 6 rate hikes! 

Also for 2022, there are now 7 members (up from 4 in March) looking for hikes, versus 11 on hold next year. It is important to stress that the dots are just forward indications and are not guaranteed.

Below we see the market expectations of rates in the coming years, with the Fed Funds futures. The current Fed Funds range is 0.0% to 0.25%. 

Fed Funds futures

The market begins to move in early 2022 and is pricing a +25bps rate hike (on the Fed Funds futures, the move down from 99.8 down to 99.5/99.6) in late 2022. By the end of 2023, the market is forecasting almost a whole +1% increase in interest rates (down from 99.8 current to 98.9).


What does this mean for markets?

Taking this hawkish surprise, the market has sold US Treasuries, pulling bond yields sharply higher. This has driven a jump in US “real” yields and therefore strengthened the US dollar.

US real yields and USD

This move has had knock-on effects through major markets:

USD strengthening across major forex pairs, driving EUR/USD below significant medium-term support c. 1.2000 and GBP/USD below support around 1.4000. These pairs will need to recover soon otherwise there could be a significant shift in outlook.

Gold (MT5 code: XAUUSD) is testing support around $1810. A decisive move below $1800 would threaten further downside.

S&P 500 futures (MT5 code: SP500ft) has fallen into near-term support around 4200. A move below 4165 would threaten a deeper correction.



The Fed’s hawkish surprise has caused USD strengthening, driving gold and US equities lower. If this movement continues, there could be a key shift in the outlook across major markets.