Fed Rate Hike Expected to Bring Limited Gains to USD

Elias Haddad of Brown Brothers Harriman expects the Federal Open Market Committee to raise interest rates by 25 basis points to a range of 3.75%-4.00%, its first move since July 2023.

This decision is justified by persistently above-target inflation and a stable labor market, according to Haddad.

The market is already pricing in further tightening, with futures suggesting almost 100 basis points of tightening over the next twelve months.

Haddad notes that this creates an asymmetric risk for the US dollar, with limited gains from a hawkish outcome but greater downside from a dovish surprise.