The Federal Reserve keeps rates unchanged but highlights more to come

The SNB surprises markets and keeps rates unchanged

By Raed Alkhedr | @raedalkhedr | 21 September 2023

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  • Markets await the decision on the UK interest rate.

  • The Swiss Franc sharply declines after an unexpected interest rate hold.

  • The dollar rises, and the Federal Reserve leaves room open for further interest rate hikes.

The Federal Reserve keeps the interest rate at 5.50%.

In its quarterly meeting yesterday, the Federal Reserve announced its decision to keep the interest rate unchanged at 5.50%, as expected, maintaining interest rates at their highest levels in 22 years.

Despite the interest rate hold at current levels without change, the bank has left room open for another interest rate hike before the end of the year. The bank has also raised its expectations for interest rates in the coming year.

The accompanying statement to the decision indicated that most members of the Federal Reserve see the need to make another interest rate hike before the end of the year. In the press conference held by Federal Reserve Chairman Jerome Powell, he affirmed that the bank is closely monitoring inflation rates and is prepared to take appropriate measures to control prices.

Immediately after the decision was announced, US stocks experienced significant declines, closing lower as the bank confirmed that interest rates may remain at elevated levels for a longer period.

Yields on US Treasury bonds for the two-year term reached their highest levels since 2006 as investors grew concerned about rising interest rates. Technology stocks also took a hit as fears spread that further increases would hinder growth stocks.

The Swiss National Bank also unexpectedly keeps the interest rate unchanged.

For the first time after four consecutive meetings of continuous interest rate hikes, the Swiss National Bank decided to leave the interest rate unchanged in its meeting this morning. The markets were expecting a 25 basis point increase to 2%.

The Swiss National Bank confirmed that the continuous interest rate hikes have succeeded in controlling inflationary pressures. However, it also left room open for further interest rate hikes if conditions require it.

The inflation rate in Switzerland stood at 1.6% in August, which is lower than the target rate of 2%. Meanwhile, headline inflation across the Eurozone reached 5.3% last month.

The Swiss Franc experienced significant declines against most currencies immediately after the decision was announced, as strong selling pressure on the currency increased with the interest rate hold and the bank's confirmation that the current conditions do not necessitate further monetary tightening. The USD/CHF pair rose to levels of 0.9050, while the EUR/CHF pair rose to levels of 0.9646.