FOMC raises federal funds rate by 25bps to 5.25-5.50% as widely expected, by unanimous vote. The accompanying statement is like a carbon copy for the June’s one. The one exception is:
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent.”
Fed will continue to “continue to assess additional information and its implications for monetary policy.”
Full statement below:
Recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. 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. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
Fed Powell keeps Sep hike open, S&P 500 continues to lose upside momentum
US equities ended mixed in Wednesday’s session, following Fed’s expected rate increase by 25 bps to 5.25-5.50%. Despite the major policy decision, market volatility was surprisingly restrained throughout the trading session. Fed Chair Jerome Powell indicated that another rate hike could be on the table for September, while steering clear of predicting when a rate cut might transpire, pointing to the prevailing high economic uncertainty.
Current market expectations for additional rate hikes this year stand at 22% for September, 33% for November, and 30% for December. The likelihood of a rate cut commencing as early as March next year is considered to be 55.8%.
Powell, in the post-meeting press conference, stated, “It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting”. He emphasized that Fed’s monetary policy decisions will continue to be formulated on a meeting-by-meeting basis, largely dependent on economic data and indicators.
When discussing potential rate cuts, Powell asserted, “We’d be comfortable cutting rates when we’re comfortable cutting rates,” suggesting that a cut could take place next year if inflation hovers consistently near the Fed’s target. However, he stressed that this scenario remains a considerable ‘if,’ given the considerable uncertainty surrounding future economic developments and subsequent policy meetings.
More on FOMC
S&P 500 closed down slightly by -0.02% overnight. The index continued to lose upside momentum as seen in D MACD. While further rise cannot be ruled out, upside would likely be limited by 138.2% projection of 3491.58 to 4100.51 from 3808.86 at 4650.40. Meanwhile, break of 4458.48 resistance turned support will confirm that a correction is at least underway, and target 55 D EMA (now at 4362.79) and below.