As I wrote in yesterday’s blog, the March 2017 meeting of the Federal Reserve could prove to be an odd affair. Indeed, it turned out to be so.

The central bank raised interest rates by 25 basis points from 0.75% to 1%, in its second rate hike in 4 months and its third since the financial crisis of 2008. A momentous occasion? Apparently not.

In recent years, the Fed has been accused of many for not going far enough, for intentionally keeping rates below where they should be in order to inflate the US economy – a view that the country’s 45th president has repeatedly agreed with.

The other side of the argument believe that the Fed has been far too optimistic about the strength of the US economy, forecasting too much, too soon. Nothing illustrates this point better than the debacle of 2016, where policymakers in all their gusto had forecast 4 rate hikes during the course of the year, however only managed to deliver one solitary hike in December.

Yet many were heading into yesterday’s meeting believing that the Fed was now ‘behind the curve’ and that the central bank was not acting fast enough to cope with the United States’ accelerating rate of inflation, its improving growth forecasts and the possibility of its new administration enacting a huge fiscal stimulus that could dramatically change the US economy.

As a result of the increasingly hawkish Fed speak in the run up to the meeting, many analysts had, in fact, changed their tune on how fast rate hikes would come, while some had even begun to stipulate that the number of hikes would change too. As the rate hike was already priced into the market, it essentially became a non-event, and the outlook became the primary contributor to the market moves that followed.

It was for this reason that markets were disappointed with the Federal Reserve last night; not because it raised rates, but rather that policymakers did not change their forecasts to show that they believe three rate hikes might occur before the end of 2017.

It is because of these unchanged forecasts – a move that is sen as less hawkish, rather than dovish – that we have seen a correction in the USD and, consequently, a range dollar-sensitive commodities and indices. Markets had previously priced in the belief that the Fed would improve their monetary policy forecasts and were therefore surprised when this did not happen and that policymakers left outlook unchanged.

What ensued can be viewed as a market correction; a range of investors addressing their positions to better reflect the outlook for two further rate hikes rather than three.

Whilst normally, a rate hike would be seen as a bearish factor for safe haven assets such as Gold and USD/JPY, this sharp correction in the dollar instead has a bullish impact. Even though some technical indicators, such as the Relative Strength Index (RSI), suggested that a bullish turn could be in the offing, the size of the rally in Gold may be surprising for some. However, the 1.3% daily decline in the US Dollar Basket – a weighted average of the greenback against its peers – helped the precious metal rally by $20 yesterday, a rally that is continuing into today.

While not all central bank meetings prove this interesting, it certainly provides a welcome break from the usual procession of events. Here’s to many more exciting bank meetings throughout the rest of 2017.

Henry Croft, Research Analyst, 16 March