How the Fed lost control of interest rates

Key points

• Since 2020, the FOMC has hiked rates over 5%
• Overnight rates are expected to lower about 1% by the end of 2024*
• Short-term yields have stabilized while 10YR yields hit decade-long highs

What has the Fed done to curb inflation?

Since the pandemic, the FOMC has been extremely active - both cutting rates to accomodate the global shutdown, and raising rates once the US economy came roaring back. US inflation rose to its highest level since the 1980's last year, causing the Fed to raise rates 11 consecutive meetings to 5.5% - its highest level in 22 years. After leaving rates unchanged in its past two meetings and inflation seemingly past its peak, markets are currently predicting the Overnight rate to fall about 1% by the end of 2024.*

Does the Fed affect mortgage rates?

While the Fed does not directly control commercial rates, the Fed expects Treasuries and other interest rates to be influenced by the Overnight interest rate. In theory, shifting the Overnight rate shifts the overall economy toward their desired goal, either encouraging or restricting growth to maintain steady inflation.

However, recently rates like the 10-year Treasury yield have been moving independently of the Overnight rate. Overnight rates have stabilized since July and yields in the 10-year have continued rising - even hitting 5% for the first time since 2007. This has caused fixed-rate mortgages and other rates tied to the 10-year to rise further contrary to the Fed's actions.

*Projections based on the CME's FedWatch tool for 12/18/24

How to trade US dollar

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like IG. USD pairs can be found in IG's platform under the 'USD Pairs' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.