The US Federal Reserve's hawkish hold signals stagflation risk with lower growth and higher inflation forecasts. Global markets react as Asian stocks sell off and the US dollar rebounds amid geopolitical tensions.
Fed’s hawkish hold triggered US dollar rebound; stock indices sold off
The US Federal Reserve left its policy Fed funds rate unchanged for the fourth consecutive meeting at 4.25%-4.50% as expected, and Fed Chair Powell cited concerns that tariff increases will likely push up prices during the press conference.
Implied stagflation risk has been flagged out in the latest Fed’s “dot plot” of economic projections released yesterday, 18 June. Fed officials projected lower economic growth forecasts (2025 and 2026) and a higher inflation outlook (2025, 2026, and 2027) versus the prior forecasts made in March.
Even though Fed officials maintained the median projection of two Fed funds rate cuts in 2025 (similar to the current market-based pricing according to the CME FedWatch tool), they pencilled in fewer rate cuts in 2026 and 2027 versus the prior projections made in March.
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The US dollar rebounded from this latest “hawkish hold” monetary policy guidance by the Fed. The US Dollar Index added an intraday gain of 0.1% in today’s Asian session, and it is challenging the 20-day moving average that is acting as an intermediate resistance at 99.00 at the time of writing.
Asian benchmark stock indices sold off today, together with the US stock indices futures, reinforced by an increase in geopolitical risk premiums arising from the Israel-Iran conflict. Bloomberg reported that senior US officials are preparing for a possible strike on Iran in the coming days.
On an intraday basis, Hong Kong’s Hang Seng Index plummeted by -2%, its worst single day decline since 7 April after the US “Liberation Day” tariffs announcement. Japan’s Nikkei 225 shed -0.8% as it struggled to break above an intermediate range resistance of 38,850 in place since 13 May.
Gold (XAU/USD) continues to be sandwiched between opposing factors; a resilient US dollar that is keeping its upside capped in the near-term at US$3,400, while rising geopolitical risk is allowing the yellow metal to be supported by its 20-day moving average, which is acting as an intermediate support at US$3,350.
Short-term bullish momentum remains intact for WTI crude oil as it rallied by 0.6% to US$74.95/barrel in today’s Asian session, probing the recent minor swing high area of US$75.18/barrel printed on last Friday, 13 June, when Israel conducted its first round of airstrikes against Iran.
The latest intraday technical analysis on US Wall Street 30, US Nas 100, US SPX 500, Hong Kong 33, Japan 225, Germany 30, EUR/USD, GBP/USD, AUD/USD, USD/JPY, USD/CHF, Gold (XAU/USD), and West Texas Oil can be found in our YouTube video above.
