1. Home
  2. Markets Updates
  3. The Fed Signals More Pain to Come

The Fed Signals More Pain to Come

22 September 2022

Share the article:

As expected the Federal Reserve increased interest rates by 0.75% for a third consecutive time. Investors were also interested in the press conference where the Chairman of the Fed gave clear signals on the regulator’s stance. This is what shook the market even more. Mr Powell advised, “I wish there was an easier way but I’m afraid there is not”!

As expected, the US Dollar strongly increased in value and reached a new yearly high. The US Dollar Index rose to a whopping 111.55 and has increased by 1% in the past day alone. The DXY is at a 20 year high after a surge in the Federal Fund Rate and an increase in demand for safe haven currencies. The US Dollar has in general been supported by its resilience while other economies have struggled.

The stock market declined once again as expected. NASDAQ saw the strongest decline with the price dropping by 2.54%. This took the price to a 3 ½ month low. Other risk-based assets, such as cryptocurrencies, also remain under pressure. The comments made by the Chairman definitely left investors worried. It’s clear now that more hikes are underway, but many are relieved that this hike was not 1.00%.

GBP/USD

The price of GBP/USD is starting to look very similar to the 1980s, and that is not good for the Pound or the UK as a whole. The price of the instrument is not being driven solely by the strengthening US Dollar and the Federal Reserve. It is also under a lot of pressure from the weakening Pound. This week the price of the exchange has declined by 1.60% and is trading below all moving averages and the volume weighted average price. Most analysts believe that the price will remain under pressure, however, traders should be cautious of retracements and general volatility.

gbpusd-1hr--fed-rate-naga.png

*GBP/USD 1-hour chart on September 22nd *

Let’s start with the US Dollar. The Federal Reserve was expected to increase interest rates by 75 basis points which had already been priced into the exchange rates. However, the press conference played a key role in the strong price movement we saw yesterday. The words used by the Chairman were stern and to the point, inflation will not be tolerated and the Central Bank is looking for inflation to “significantly fall”. The Chairman also mentioned that “pain” is required to bring down the level of inflation, which has been relatively stubborn so far.

Previously, analysts had predicted that interest rates could rise to 4%. However, now most economists have advised that they believe the Federal Fund Rate will rise to 4.5%, if not even 5%. The US has not had interest rates this high since before the 2007-2008 banking crisis.

In the UK, the Bank of England is in panic mode. The BoE is predicted to increase interest rates by 50 basis points according to economists. Investors, on the other hand, believe it may be a 0.75% hike. This would be UK’s biggest back-to-back rate hike in 30 years, but unfortunately it’s not all good news. The BoE has been signaling a recession in the near future and voiced concerns over the current level of debt under the new fiscal policy. Former BoE officials have made public their thoughts on the new fiscal policy, stating that it’s “a disaster”.

gbpusd-8hr--fed-rate-naga.png

*GBP/USD 8-hour chart on September 22nd *

Danny Blanchflower, one of the UK’s most trusted economists, has advised that the GBP/USD pair will continue to fall!
What’s your view on this?

Quick Summary:

  • Fed implements the biggest consecutive interest rate hikes in almost 40 years.
  • Federal Fund Rate is up by 0.75% with more interest rate hikes underway.
  • Powell indicates that a recession may be required to bring inflation down.
  • US Dollar Index rose to a whopping 111.55, rising 1% in the past day alone.
  • Bank of England is predicted to increase interest rates by 0.50%.
IMPORTANT NOTICE: Any news, opinions, research, analyses, prices or other information contained in this article are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and therefore, it is not subject to any prohibition on dealing ahead of dissemination. Past performance is not an indication of possible future performance. Any action you take upon the information in this article is strictly at your own risk, and we will not be liable for any losses and damages in connection with the use of this article.
RISK WARNING: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail client investors lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Related articles

Top Economic Events to Watch | July 14 - 18, 2025
14 July 2025
Big week for macro! China GDP, UK CPI, and US retail sales are on deck—here’s what they mean, what to watch, and how to trade the moves.

Read more

Gladys Eguia

NAGA Weekly Recap July 7 - 11, 2025
11 July 2025
July 2025 market recap: inflation trends, interest rate outlook, oil volatility, and dollar strength impacting global markets. Stay ahead with key insights for traders.

Read more

Gladys Eguia

Gold Stalls Between 3250 and 3350 Awaiting a Breakout Trigger
10 July 2025
XAUUSD remains range bound with neutral momentum and declining volatility. Explore the technical outlook, key levels, and potential breakout scenarios for gold.

Read more