Fed is on a prolonged ‘hawkish hold,’ says Manulife’s Donald
The bar for the Fed to start cutting interest rates is high and is going to require actualized data, which may materialize at the end of the year, when the central bank may feel confident that inflation is better controlled, according to Frances Donald, global chief economist for Manulife Investment Management.
“We now believe that the Fed is on a prolonged ‘hawkish hold,'” she said. “In our base case, their next move will likely be a cut but it will take until 2024 until we see it. That said, Powell will have no choice but to keep the threat of hikes alive, lest he encourage markets to prematurely price in cuts and re-ignite inflation expectations.”
“Indeed, throughout this coming extended pause, the risk to our base case will likely almost always be for one last hike to cement the disinflationary trend,” she added. “Because inflation’s improvement is likely to stall in the next 2-3 reasons for largely mathematical reasons, market probabilities of rate hikes at future meetings will remain non-zero and would be unwise to completely fade this even as we don’t expect any additional hikes.”
— Tanaya Macheel
S&P 500, Nasdaq shed earlier gains
The S&P 500 and the Nasdaq Composite shed earlier gains and turned lower.
The broad market benchmark slipped 0.2%, while the tech-heavy index fell 0.4%.
The Dow Jones Industrial Average remained positive, but only marginally so. The 30-stock Dow was up about 10 points, or 0.02%, as of 3:15 p.m.
–Darla Mercado
Rate cuts unlikely this year, Powell suggests
Federal Reserve Chair Jerome Powell during Wednesday’s press conference suggested that rate cuts are unlikely to come this year.
“I’m saying we would we be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year, I don’t think it would be,” he said.
On the topic of rate cuts next year, Powell said it’s going to be a “judgement” they make based on how “confident” they are.
— Samantha Subin
Downsides to not curbing inflation outweigh the short-term pains, Powell says
A softening of labor market conditions in the Federal Reserve’s fight against is likely — but failing to tame inflation would result in far worse results, Fed Chair Jerome Powell said in a press conference following the central bank’s July meeting. The Fed announced a widely-expected 25-basis point hike.
“The worst outcome for everyone, of course, would be not to deal with inflation now [and] not get it done. Whatever the short term social costs of getting inflation under control, the longer term social costs of failing to do so are greater and the historical record is very, very clear on that,” said Powell.
“If you go through a period where inflation expectations are not anchored [and] inflation is volatile, it interferes with people’s lives and with economic activity. That’s the thing we really need to avoid, and will avoid,” he added.
— Hakyung Kim
This may be Fed’s last hike this year, bank managing director says
The interest rate hike announced Wednesday could be the last of 2023, according to Rajeev Sharma, managing director of fixed income at Key Private Bank.
“In our opinion, the rate hiking cycle is done and the Fed will now pause for the rest of the year,” he said.
— Alex Harring
Powell says Fed can ‘afford to be a little patient’
Federal Reserve Chair Jerome Powell indicated that the central bank is willing to wait things out as it follows the latest data.
“We have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute,” he said.
— Samantha Subin
Monetary policy will likely need to be more restrictive for longer, Powell says
Federal Reserve Chairman Jerome Powell said Wednesday that current economic conditions show that monetary policy will likely need to be more restrictive for longer.
“I would say that what our eyes are telling us is that policy has not been restrictive enough for long enough to have its full desired effects,” Powell said. “We intend to keep policy restrictive until we’re confident inflation is coming down sustainably to our 2% target, and we’re prepared to further tighten if that’s appropriate.”
— Brian Evans
Fed looking for proof inflation is ‘durably down,’ Powell says
Powell said that the Fed is not yet fully confident that inflation is defeated even though recent headline reads show that price increases have cooled significantly.
“We need to see that inflation is durably down that far. … We think we’re going to need to certainly hold policy at a restrictive level for some time, and we need to be prepared to raise further if that, if we think that’s appropriate,” Powell said, pointing out that core inflation is still running above 3%.
— Jesse Pound
Powell says Fed will determine future rate increases ‘meeting by meeting’
Chair Powell said the FOMC gave no guidance on the potential for further rate increases at future meetings.
“It’s not something we’ve looked at,” he said. “We’re going to be going meeting by meeting and as we go into each meeting, we’re going to be asking ourselves the same questions. So we haven’t made any decisions about any future meetings, including the pace at which we consider hiking, but we’re going to be assessing the need for further tightening that may be appropriate … to return inflation to 2% over time.”
— Tanaya Macheel
‘Below-trend growth’ likely ahead as Fed fights inflation, says Chair Jerome Powell
Federal Reserve Chair Jerome Powell acknowledged that as the central bank remains committed to reaching its 2% inflation target, a pullback in economic growth and labor market strength is likely to come.
“Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions,” he said in the central bank’s post-meeting press conference.
The Fed chair acknowledged that the central bank is aware its actions “affect communities, families and businesses across the country.”
“Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run,” said Powell.
— Hakyung Kim
Powell: Fed could either raise or hold rates in September
Fed Chair Powell said the central bank could raise rates again or hold them steady in September depending on what new economic data shows.
“I would say it’s certainly possible that we will raise [rates] again at the September meeting if the data warranted,” he said. “And I would also say it’s possible that we would choose to hold steady. And we’re going to be making careful assessments, as I said, meeting by meeting.”
— Alex Harring
Stocks turn higher as Powell says Fed could ‘hold steady’ in September
The major averages turned positive on Wednesday afternoon during Federal Reserve Chair Jerome Powell’s press conference.
The S&P 500 added 0.24%, while the Nasdaq Composite gained 0.3%. The Dow Jones Industrial Average jumped 180 points, or 0.5%, and is back on pace to rise a 13th day.
Stocks popped after Powell said that it’s possible that the Fed could raise rates at the September meeting if the data warrants it, but also possible that the central bank could hold steady.
–Darla Mercado
Powell reiterates Fed’s ‘data-dependent approach’
“We will continue to take a data-dependent approach in determining the extent of policy firming that may be appropriate,” Fed Chair Jerome Powell said Wednesday after the central bank hiked rates by 25 basis points.
“We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt, Powell added.
— Fred Imbert
Powell says labor market is still ‘very tight’
Jerome Powell said that “the labor market remains very tight” and that demand still and that demand for labor “substantially exceeds supply of available workers.”
However, the Fed chair did note that the labor market is not as hot as it was last year.
“There are some continuing signs that supply and demand in the labor market are coming into better balance. The labor force participation rate has moved up since last year, particularly for individuals aged 25 to 54 years. Nominal wage growth has shown some signs of easing, and job vacancies have declined so far this year,” Powell said.
—Jesse Pound
Powell says inflation still has a long way from 2% target
Fed Chair Jerome Powell said while the inflation rate has eased from its peak, the efforts to bring it down to the central bank’s target are far from over.
“Inflation has moderated somewhat since the middle of last year. Nonetheless, the process of getting inflation back down to 2% has a long way to go,” Powell said at a press conference.
— Yun Li
With July rate hike done, questions remain on whether this is the last increase, says Goldman Sachs
Investors weren’t surprised by the Federal Reserve’s move to hike rates by a quarter point Wednesday, but whether this is the last increase of the cycle remains a question for investors, according to Gurpreet Gill, global fixed income macro strategist at Goldman Sachs Asset Management.
“Paradoxically, today’s Fed meeting was one of the most certain and uncertain of the cycle,” Gill said, noting that this rate hike was “fully priced in and widely expected.”
“We think recent data is consistent with the US policy rate peaking in July, as core CPI inflation slowed sharply in June,” the strategist said. “But any renewed signs of inflation strength in key data like the Employment Cost Index released on Friday and upcoming PCE inflation releases still have potential to extend the hiking path.”
–Darla Mercado
Fed statement provides little new information, Peter Boockvar says
The little-changed policy statement from the Federal Reserve shifts the focus toward Chair Jerome Powell’s press conference, according to Bleakley Financial’s Peter Boockvar.
“Whoever wrote today’s FOMC statement didn’t have to do much. They just copied and pasted the May sentence on a 25 bps rate hike back into the statement after taking it out in June. Again, there were no dissents, even by Austan Goolsbee who has been more vocal about a stop. Bottom line, we now have to wait for the presser to glean any new information,” Boockvar said in a note to clients.
— Jesse Pound
See what changed in the July Fed meeting statement
The Federal Reserve hikes interest rates by a quarter percentage point
The central bank raised the benchmark borrowing rate by a quarter of a percentage point, as markets have widely predicted.
This marks the 11th rate increase in the Federal Reserve’s latest rate-hiking cycle. It also brings the benchmark borrowing rate to a range of 5.25% and 5.5%. It’s the highest level for the upper-bound of the range since 2001.
Read more about the Fed’s rate hike here.
–Darla Mercado
Where markets stand before the Fed’s decision
Stocks are down as the Federal Reserve’s announcement approaches. Here’s where the markets stand as of about 1:45 p.m.
The S&P 500 is down 0.3%, and the Nasdaq Composite is off 0.4%. The Dow Jones Industrial Average slipped into negative territory, dropping 15 points or 0.04%.
The 2-year Treasury yielded 4.89%, while the 10-year Treasury yield inched down to 3.89%.
–Darla Mercado
Here’s a silver lining as rates rise: Earn more money on your cash
The Federal Reserve’s rate-hiking campaign has paid off for fixed income investors.
To put things into perspective, during the week of March 11, 2022, the rate on the 2-year Treasury note was 1.75%, according to Refinitiv. On Wednesday, as the Fed’s decision approaches, it’s yielding 4.89%.
Certificates of deposit and high-yield savings accounts are also paying attractive income for investors hoping to stash their cash. A range of online banks are offering 1-year CDs with annual percentage yields that exceed 5%, and select institutions are offering yields over 4% for savings deposits.
CNBC Pro subscribers can read more about the hunt for safe yield here.
–Darla Mercado, Nick Wells
Don’t expect the Fed to cut rates until labor market softens, Russell Investments’ BeiChen Lin says
The Federal Reserve will likely need to see more softening in the labor market before it begins to trim rates, said Russell Investments strategist BeiChen Lin.
Even if the expected July rate hike winds up being the last one, key economic metrics are still looking hot, he said. “Core CPI and Core PCE rates are still above the Fed’s 2% inflation target,” the strategist wrote, referring to the consumer price index and the personal consumption expenditures index.
However, the Fed still has two more payroll reports and PCE reports before its September meeting, which may show sufficient cooling that the central bank could take a step back from further hikes, Lin said.
He likened policymakers’ expected move to hike rates after a pause in June to grilling meat.
“While you might not be able to achieve perfection, you’d rather risk burning the chicken a bit than winding up sick,” the strategist said.
–Darla Mercado
This is what’s ahead as the Fed’s decision approaches
The Federal Reserve is expected to resume hiking interest rates on Wednesday, this time with a quarter percentage point increase. It would be the 11th time the central bank raised rates since it embarked on its policy-tightening campaign in March 2022.
This move would raise the benchmark borrowing rate to a range of 5.25% and 5.5%. That would be highest level of the upper-end of the range since 2001.
Though investors have been expecting this rate increase — fed fund futures show a nearly 100% certainty that the Fed will hike by a quarter point, according to the CME FedWatch Tool — they aren’t quite certain where Federal Open Market Committee officials will go from here.
On the one hand, the Fed’s dot-plot in June called for two more quarter-point hikes, but some are worried that further rate increases could nudge the economy into a recession.
Read more here about what’s coming up at the conclusion of the July meeting.
–Darla Mercado, Jeff Cox