Still Aggressive Fed Halts Rate Adjustment After 10 Consecutive Hikes

The Federal Reserve kept interest rates unchanged on Wednesday but noted in new economic projections that borrowing costs will likely rise another half percentage point by the end of this year as the US central bank reacted to a stronger-than-expected economy and a slower decline in inflation.

New projections from the Federal Open Market Committee added an aggressive bias to Wednesday’s interest rate decision, showing policymakers in the median see the benchmark overnight interest rate rising from the current 5.00 range. %-5.25% to a range of 5.50%-5.75% by the end of the year. Half of the 18 Fed officials scored on their “point” at that level, three of whom see the policy rate moving further, including one official who sees it rising above 6%.

MARKET REACTION:

STOCKS: The S&P 500 fell 0.38%

BONDS: The yields of the reference 10-year notes increased to 3.827%; The 2-year bill yield rises to 4.755% FOREX: The euro cuts its gain to 0.19% and the US.

The dollar index pared a slight loss

COMMENTS:

ANGELO KOURKAFAS, SENIOR INVESTMENT STRATEGIST, EDWARD JONES, ST LOUIS

“We are seeing a more aggressive pause. For the first time this cycle, the Fed is not raising rates, but the market is looking… clearly looking at the 2023 estimate that implies more of an additional hike.”

“This way, policymakers can maintain some flexibility depending on how the economy and inflation progress. Watching the economy resilient keeps the Fed on high alert rather than letting its guard down too soon.”

“The message from the CPI and PPI is clear that we continue to see progress, but with inflation still above the 2% target, the Fed cannot yet declare victory.”

“The Fed is calling for a stronger economy this year and a smaller rise in unemployment. That fits with the theme that things are holding up better. From a Fed perspective, it’s good news that the economy is resilient, but they want to achieve some kind of deceleration.”

“The market realizes that the Fed is nearing the end of the tightening cycle… They have done a lot in a short time. It allows them to be a little more patient.” “The most surprising thing was that the median forecast called for 2 more hikes instead of 1. Putting into perspective how much they’ve already gone up, it’s not as aggressive as it might have seemed when they were starting out. However, the idea of ​​any rate cut is off the table for this year.

MICHAEL BROWN, MARKET ANALYST, TRADERX, LONDON “An aggressive FOMC jump tonight, with rates unchanged as expected, but the Committee noted that at least two more rate hikes are likely before the end of the year.” through the 50bp upward revision of this year’s midpoint.” “Clearly, the strength of the labor market and ongoing concerns about the stickiness of core inflation continue to drive policymaking for Powell & Co, with a victory lap to celebrate that the inflation beast has been slain still some way off.”

 

“Today’s decision to pause policy actions was consistent with recent labor market and inflation data. But with the economy proving resilient, downside risks from banking stress fading, debt limit uncertainty behind us, and inflation still hovering above target, we’re not surprised the Fed has also hinted that a move may be warranted. “Additional affirmation of policy,” with the median projection for the year-end federal funds rate rising from 5.1% in March to 5.6%.

“Job openings are moderating, average hourly earnings are trending down, and the composition of the May CPI inflation report is encouraging.

“The upside surprise in the core CPI reading last month was driven by used car prices, however the Manheim Index, a timely measure of the outlook for used car prices, points to a moderation.” It is important to note that the slowdown in housing inflation continued and the amplitude of price increases softened further.

“The market has been sold as investors are concerned that there are possibly at least two more rate hikes between now and the end of the year with no rate cuts.” month, but also did not increase the rates any more, which were high enough. While others thought they would pause this meeting, but maybe add one more walk in July and that would be it. However, it seems that the FOMC members have become even more aggressive since the last meeting, and I think that has caught investors by surprise.”

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO

 

“You’re looking at an economy that in some areas is doing very well, especially on the service side, and they’re (the Federal Reserve) expecting unemployment to go up, which it really hasn’t.” “It’s not a surprise to see the market sell off a bit because they’ve been so bullish in anticipating that the Fed will remain dovish and they’ve been consistently proven wrong.”

MICHAEL JAMES, MANAGING DIRECTOR, STOCK TRADING, WEDBUSH SECURITIES, LOS ANGELES

“The market was pretty overbought leading up to the meeting and any sign of aggressive commentary would be negative. We got it and that’s the initial knee-jerk reaction. We need to get more color from Chairman Powell, but the initial statement clearly says more aggressive than the market was prepared for.” to at least enter the declaration”.