Global shares flat, US yields fall after Fed delivers rate hike
The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, citing still elevated inflation as a rationale for what is now the highest U.S. central bank policy rate in 16 years.
The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, and the accompanying policy statement left the door open to another increase.
“The (Federal Open Market) Committee will continue to assess additional information and its implications for monetary policy,” the Fed said in language that was little changed from its June statement and left the central bank’s policy options open as it searches for a stopping point to the current tightening cycle.
STOCKS: The S&P 500 pared losses and was recently down around 0.1% at 4563.94
BONDS: The two-year U.S. Treasury yield was down 4.8 basis points at 4.845%. The yield on 10-year Treasury notes was down 5.1 basis points to 3.861%.
FOREX: The US Dollar Index was down 0.3% at 101.02
GENNADIY GOLDBERG, HEAD, U.S. RATES STRATEGY, TD SECURITIES, NEW YORK
“The market’s a little bit uncertain of this because changes to the statement were fairly limited. It really is all about J Powell at his press conference coming up.”
“The only real change was the slight upgrade to economic activity from ‘modest’ to ‘moderate’ before people’s eyes glaze over at that statement. That is a bit of an upgrade in Fed parlance, so it is policymakers saying that data has been coming in stronger than expected.”
“It’s interesting to see that alongside an unchanged characterization of inflation, even though they’ve been quite optimistic that inflation will be coming down, they’ve been quite happy with the last report on CPI.”
“They’re not willing to change the overall statement just yet. What it means is Powell is probably going to stay relatively hawkish in his remarks. I don’t think there will be much of a change in tone from what we’ve heard from Powell over the last several appearances.”
“From a market standpoint, it’s very hard for markets to react to almost no change in tone of any kind. There should be a slight hawkish reaction to this, rates should be a little bit higher, but the market’s going be waiting for Powell to decide that.”
ELLEN HAZEN, CHIEF MARKET STRATEGIST, F.L.PUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS
“If you look at the comparison of the June statement to the July statement, they literally changed a handful of words, almost no changes at all, so I would say what that means is they have communicated almost zero new incremental information through the statement. Therefore, we need to wait for the press conference to learn anything incremental.
“The only change is they changed the word modest to moderate and they changed it from they are keeping it flat to raising it by 25 basis points and that’s it, those are the only changes.”
“It was unanimous, so they paused in June, that was a nod to the doves and now it was unanimous here with a hike and , so that was a nod to the hawks and what that means is they are leaving themselves open to take any action they want over the next couple of meetings.
“This is a very innocuous statement, it is the most innocuous I’ve seen and that is why the market hasn’t reacted.”
MICHAEL BROWN, MARKET ANALYST, TRADERX, LONDON
“A rather uneventful announcement from the FOMC, with the 25 bp hike markets expected being duly delivered, and few - if any - significant changes to the policy statement. In fact, this may well be, so far at least, the most uninspiring and unexciting decision of the cycle.”
“Markets have, unsurprisingly, taken this in their stride, with attention now falling on Chair Powell’s press conference, particularly as to any guidance that may be provided in terms of whether or not the FOMC will deliver the additional 25bp hike this year called for in the June dot plot.”