Stocks rose as investors digested the latest Federal Reserve rate increase and a “slightly hawkish surprise” in officials’ projection for where rates will stand at the end of this year.
(Bloomberg) — Stocks rose as investors digested the latest Federal Reserve rate increase and a “slightly hawkish surprise” in officials’ projection for where rates will stand at the end of this year.
The S&P 500 erased losses that approached 1%.
The two-year yield topped 4% while the dollar remained higher.
Fed Chair Jerome Powell said officials were “strongly committed” to curbing inflation after they raised interest rates by 75 basis points for a third straight time and signaled more hikes are coming.
“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” he told a press conference in Washington on Wednesday.
The “dot plot”, which the central bank uses to signal its outlook for the path of interest rates, shows the median year-end projection for the federal funds rate rose to 4.4%.
The estimate for the end of 2023 was boosted to 4.6%.
Comments:
- “It seems like the market is wrestling with the possibility of higher rates at year-end on the one hand, and possibly getting the bulk of the rate hike cycle done sooner on the other hand.
I think it’s fair to say this was a slightly hawkish surprise, but markets were expecting them to err on the hawkish side,” said Sameer Samana, Wells Fargo Investment Institute senior global market strategist.
- “They have a brief window to act aggressively, and they seem eager to use it,” said Jan Szilagyi, co-founder of Toggle AI, an investment research firm.
- “The first set of Fed releases from the September meeting are unambiguously hawkish,” said Krishna Guha at Evercore.
“The macro projections signal increased risk of a harder landing.”
- “The initial market reaction – with equities down, rates up and euro down – reflects this “high for longer” mantra that spurs from the FOMC’s projections: rates could remain as high as today throughout 2023, and that is not what markets were pricing in,” said Florian Ielpo, head of macro of the multi asset group at Lombard Odier Asset Management.
- “The Fed was late to recognize inflation, late to start raising interest rates, and late to start unwinding bond purchases,” said Greg McBride, chief financial analyst at Bankrate.
“They’ve been playing catch-up ever since. And they’re not done yet.”
- “The market seems to have hoped beyond hope that they would hear some reference to an end to rate hikes on the horizon, but that’s certainly not what we got today,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
“It’s important to keep in mind that Fed policy operates on a lag, so it may be some time before we see inflation come down close to the Fed’s target.
Read: Fed Delivers Third-Straight Big Hike, Sees More Increases Ahead
Key events this week:
- Bank of Japan monetary policy decision, Thursday
- The Bank of England interest rate decision, Thursday
- US Conference Board leading index, initial jobless claims, Thursday
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Here are some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 2:57 p.m.
New York time
- The Nasdaq 100 rose 1%
- The Dow Jones Industrial Average rose 0.5%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.7% to $0.9897
- The British pound fell 0.4% to $1.1338
- The Japanese yen was little changed at 143.62 per dollar
Bonds
- The yield on 10-year Treasuries declined five basis points to 3.51%
- Germany’s 10-year yield declined three basis points to 1.89%
- Britain’s 10-year yield advanced two basis points to 3.31%
Commodities
- West Texas Intermediate crude rose 0.3% to $84.16 a barrel
- Gold futures rose 1.3% to $1,693 an ounce
More stories like this are available on bloomberg.com
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