Dow dropped 232 but off session lows, decliners over advancers 4-3 & NAZ went up 53. The MLP index added 1+ to the 226s & the REIT index inched up to the 371s. Junk bond funds rose & Treasuries saw more buying which lowered yields (more below). Oil was off 1 to the 68s & gold finished even at 1958 after the Fed's announcement (more on both below).
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The Federal Reserve held interest rates steady for the first time in 15 months, pausing its aggressive tightening campaign to assess how the economy is faring in the face of higher borrowing costs. Policymakers have raised interest rates sharply over the past year, approving 10 straight rate hikes in hopes of crushing inflation and cooling the economy. In the span of just one year, interest rates surged from near-zero to a range of 5.00% to 5.25%, the fastest pace of tightening since the 1980s. "Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy," the Federal Open Market Committee said. The Fed's next meeting takes place 25-26. But policymakers also left the door open to additional rate increases this year. New economic projections laid out after the meeting show that a majority of Fed officials who participated in the meeting expect rates to rise to 5.6% by the end of 2023, implying 2 more qtr-point increases this year. The central bank previously projected a peak rate of 5.1%, indicating that policymakers believe there is more work to be done to wrangle inflation under control. Stocks slumped following the news. The quarterly forecasts indicate the central bank will not cut interest rates until 2024, to a rate of about 4.6%. "In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Fed added. The decision came one day after the Labor Dept reported the consumer price index, a key measure of inflation. rose 4% in May from the previous year, the smallest increase in more than two years. Still, that remains about twice the Fed's target 2% rate.
Fed halts interest rate hikes for first time in 15 months
The Federal Reserve paused its hiking campaign in Jun, but forecast it will raise interest rates as high as 5.6% before 2023 is over, according to the central bank's projections. The Fed kept the key borrowing rate in a target range of 5%-5.25%. But it was its projections, the dot-plot, that moved markets, sending them lower as the central bank projected 2 more increases. That's if the central bank keeps its rate-hiking pace at qtr-point increments. 18 members of the Federal Open Market Committee indicated their expectations for rates in 2023 & further out in the dot plot. 4 members saw one more rate increase this year & 9 expect 2. 2 more members added a 3rd hike while one saw 4 more. Only 2 signaled that they don't see more hikes this year. The central bank also hiked their forecasts for the next 2 years, now projecting a fed funds rate of 4.6% in 2024 & 3.4% in 2025. That's up from respective forecasts of 4.3% & 3.1% previously. Meanwhile, Fed members raised their expectations for economic growth. The Summary of Economic Projections now shows a 1% expected gain in GDP as compared to the 0.4% estimate in Mar. Officials also were more optimistic about unemployment, now seeing a 4.1% rate by year's end compared to 4.5% in Mar. On inflation, the central bank raised its forecast to 3.9% for core (excluding food & energy) & lowered it slightly to 3.2% for headline. Those numbers had been 3.6% & 3.3% respectively for the personal consumption expenditures price index, the central bank's preferred inflation gauge.
The Fed forecasts two more hikes in 2023, taking rates as high as 5.6%
The 2-year Treasury yields increased after the Federal Reserve held off on a rate hike but projected 2 more were ahead later this year. The 2-year Treasury yield rose by more than 2 basis points at 4.718%. It reached a session high of 4.777% immediately after the announcement to reach its highest level since Mar 20, before paring back some of its gains. Meanwhile, the 10-year Treasury yield fell by almost 4 basis points at 3.804%. Yields & prices have an inverted relationship & one basis point equals 0.01%. The Fed said that it would measure the impacts from its previous 10 rate increases before its next meeting . The central bank began its rate hiking campaign in Mar 2022. “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the central bank said in its post-meeting statement. The Fed next meets Jul 25-26.
2-year Treasury yield jumps as Fed says more rate hikes are ahead
Gold futures settled higher, then moved lower in electronic trading shortly after the Federal Reserve announced a decision to leave its benchmark fed funds rate unchanged at a 5.00-5.25% range. The Fed is playing it safe here & has balanced its action with the statement. Once the dust is fully settled, this equity market may begin to roar again if the $ index moves lower. Aug gold was at $1958 an ounce shortly after the announcement. That follows a settlement at $1968 an ounce, up $10 (0.5%) for today's session.
Gold Prices Settle Higher, Head Lower After The Fed Rate Decision
Oil dropped as a massive increase in US crude stockpiles & the Federal Reserve's hints that rate hikes will continue crushed the risk-on sentiment that prevailed earlier in the day. West Texas Intermediate settled below $69 after swinging more than $2 throughout the session. Prices reversed earlier gains after US stockpiles rose 7.9M barrels, & inventories at the key storage hub in Cushing, Oklahoma, swelled to the highest since 2021. Many banks have slashed their oil price estimates, largely because they see stockpiles rising & outweighing demand. Federal Reserve officials paused their interest-rate hikes 15 months of of increases, but signaled they would likely resume tightening to cool inflation. The prospect of additional hikes has inflamed concerns about a demand-reducing recession. World oil markets may tighten significantly over the next few months as China's fuel consumption rebounds from the pandemic amid OPEC+ curbs, the Intl Energy Agency said. Earlier, a large batch of Chinese crude import quotas also added to an improved outlook for consumption in the world's 2nd-largest economy. WTI for Jul fell $1.15 to settle at $68.27 a barrel. Brent for Aug dropped $1.09 to settle at $73.20 a barrel.
Oil Falls as Surging Stockpiles, Fed Signals Damage Sentiment
Stocks sold off after the announcement. The message from the Fed is to expect a few more rate hikes this year to combat high inflation which is still running higher than it would like to see. Tonight traders will continue to evaluate the Fed's announcement.
Dow Jones Industrials
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