Skip to content

Markets look to continue its bull run despite Fed’s hawkish pause

Fed officials divided over June rate hike or pause, meeting minutes show

The end of the Federal Reserve's tightening is now in sight, with policymakers leaving their rate target at a range of 5% to 5.25%. This mark the first time FOMC members haven't raised rates at the conclusion of a policy-setting meeting since last year. The policymakers did indicate that they expect to raise rates by another half percentage point by the end of the year. However, even that could be in doubt if the following inflation report shows signs of further cooling.

The Fed's dot plot indicates two more increases are likely to bring interest rates to 5.6% by the end of 2023. The CME FedWatch tool suggests a quarter-point rate hike in either July with a probability of 69%, September carrying 62%, or November. Still, these probabilities are likely due to a change as the inflation data kicks in. Of the 18 policymakers, 12 pencilled in rates at or above the median range of 5.5% to 5.75%, showing most policymakers agree further tightening is needed to contain price pressures. Fed Chair said that stretching out further rate increases over the next few months will allow the Fed adequate time to judge whether the hikes have been sufficient to slow inflation. Fed officials don't think they will soon be bringing rates much lower than they are now, with their projections now showing they expect the rate range will be 4.5% to 4.75% at the end of next year. The Federal Reserve's decision to raise the federal funds rate depends on whether the current conditions have eased enough to achieve policymakers' goals of reducing inflation and wage growth.

Powell repeatedly emphasised getting inflation down and said Fed officials had been surprised by how long inflation has stayed high. FOMC upgraded its view of economic growth and the labor market but is now looking for a rise in unemployment to 4.5% next year. He said there's still a path to a soft landing for the US economy.

The Fed pause comes after a CPI report showing inflation is slowing down. The Fed uses the core PCE index as its primary bellwether, with core PCE increasing by 4.7% from April 2022 to April 2023. However, the current inflation rate still needs to meet the Fed's target of 2%.

US market indexes ended mixed overnight after the announcement, with the S&P 500 up 0.08%, Nasdaq up 0.39% and Dow Jones falling 0.68%. Indian markets opened mixed. Initially, the market fell and then rise and traded in positive territory.

The Fed next meets July 25-26.

No comment yet, add your voice below!


Add a Comment

Your email address will not be published. Required fields are marked *

blogs

    20

    Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

    10

    Per order only (No hidden charges)

    Open FREE Demat Account in less than 10 minutes (Commodity & Currency)

    20

    Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

    10

    Per order only (No hidden charges)

    Open FREE Demat Account in less than 10 minutes

    20

    Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

    10

    Per order only (No hidden charges)

    Related Posts

    NSE to launch derivatives on Nifty Next 50 index from April 24
    On April 18, 2024, the National Stock Exchange of India (NSE), in a circular shared...
    Ambuja-Cements-to-acquire-Tuticorin-grinding-unit-for-Rs-414-crore
    India’s most trusted cement brand and a leading cement manufacturer and supplier, Ambuja Cements Ltd.,...
    Zomato shares turn multibagger in 1 year
    Zomato shares have given more than 50% return on Year to date basis and over...