Reactions after Fed hikes rates by another 75 basis points

An eagle is topped in front of the US Federal Reserve building in Washington, July 31, 2013. Reuters/Jonathan Ernst

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NEW YORK, July 27 (Reuters) – The Federal Reserve cut its benchmark overnight interest rate by three-quarters on Wednesday, with “ongoing growth” in lending, in an effort to quell the sharpest breakout of inflation since the 1980s. percentage increased. Despite evidence of a slowing economy, costs are still ahead.

The Federal Open Market Committee raised the policy rate in a unanimous vote to between 2.25% and 2.50%. On top of a 75-basis-point increase last month, and after smaller moves in May and March, the Fed has raised its policy rate this year to a total of 225 basis points, which is now what most Fed officials think is a neutral The economic impact is effectively marking the end of the pandemic-era monetary stimulus. Story: read more

In a news conference after the meeting, Fed Chairman Jerome Powell said markets have been settled based on how sharp the Fed has tightened. “There has been some volatility but that can only be expected.”

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He also said that he did not believe the economy was in recession, but officials believe it needs to see below potential growth in order to create sluggish and low inflation.

Market Feedback:

Stock: S&P 500 (.spx) Gains nearly doubled after Powell spoke and was up 2.6% in late trading

Bonds: 10-year US Treasury note yield rose 2.7867%; Two-year yield falls to 2.9776% forex: Dollar briefly extends losses to 0.6%

notes:

Richard Flynn, Managing Director at Charles Schwab UK

“Today’s announcement underscores that the Fed is fully focused on easing inflation. More rate hikes are likely in the second half of the year, and it is worth remembering that the rate hikes are likely to continue. In addition, the Fed is also tightening policy by allowing its balance sheet to shrink. In other words, Treasury securities held by the Fed are being allowed to mature without the Fed reinvesting proceeds — a strategy known as quantitative It’s called tightening.”

“The Fed’s aggressive tightening risk pushed the economy into recession. GDP growth was negative in the first quarter, and is likely to weaken in the second quarter. Key indicators of growth, such as housing activity, new business orders and consumer spending have all moderated over the past few months. A tighter monetary policy run in an environment of slow growth is likely to result in a further flattening or inversion of the yield curve, the poor performance of riskier sectors of the bond market and a stronger dollar. As the tug-of-war between inflation and bearish fears continues in the second half of the year, we expect to see highly volatile markets. ,

Salman Ahmed, Global Head of Macro, Fidelity International, London

“The continued focus on inflation and labor market strength was striking in the press conference remarks as the two main drivers behind the hiking momentum. We think a significant slowdown is already in the pipeline and in the coming weeks and months. Will start showing up in hard figures.”

“However, continued strength in the labor market – with only very temporary signs of some easing in demand and supply pressures – and the Fed’s focus on hard data means another 75bp hike is possible at the next meeting. The risk is that the Fed tightens policy too quickly, making a hard landing inevitable.”

Chris Zacarelli, Chief Investment Officer, Independent Advisors Coalition, Charlotte, NC

“Surprised to see the stock market rally on this news.”

“It makes sense that long-term bond yields would be going down, given how committed the Fed is to raising rates until inflation is under control – and in doing so, significantly increasing the economy in recession.” Will be.”

Marvin Loh, Senior Global Market Strategist, State Street, Boston

“You can certainly look at the policy statement as a flurry, but it’s in line with what they’ve been saying for the last couple of meetings – they’re going to continue to grow – are anticipating they’re going into restrictive territory. Were, they are neutral now and they continue to think that they will need to move into restrictive territory. Theoretically, the dollar should strengthen in an environment where it is fresh but it was as expected and so far this month the dollar There has been a lot of ups and downs. It’s predictable and we’ll all have to wait to see what Powell has to say.

“There have certainly been ups and downs in equities, but generally higher and it is around the idea that the tightening cycle may not be as aggressive as initially thought. We have dollar strength, we have a more inverse curve, for the most part you’ve got mixed signals, but a lot of wide ranges that are trading around, I would say things are just in those ranges, if you Will. I don’t expect the Fed to be able to really pivot at this point. After the last CPI, after the last employment report – it’s still hot. Of course we have data that’s starting to moderate and in some instances like the housing market showed it’s ready to move a little more aggressively, but they made the statement that they’re committed to getting inflation up to 2%. Having kept around, so I keep them in the back of my mind being the most important thing they’re watching right now. ,

Michael Pearce, Senior American Economist, Capital Economics, New York

“The Fed’s decision to raise interest rates by 75bp to 2.25%-2.50% moves them closer to their ‘neutral’ level. Inflation is about to fall from here and with further signs of economic weakness, we suspect officials will be more Will cautiously increase rates from here, shifting in a small 50bp move in September.”

Brian Coulton, Chief Economist, Fitch Ratings

“The Fed’s statement acknowledges the recent softening in activity data, but it is still brief in the presence of a very strong labor market and unrelenting inflationary pressures. Yet another outlier of 75 bps.” Despite the rate hike, the Fed still only raised interest rates in line with its projections of a long-run neutral rate. Given where core inflation and unemployment rates currently stand, it underscores that monetary Policy adjustments still have a long way to go. Markets expect the Fed to cut rates again next year.

Jack Ablin, Chief Investment Officer and Founding Partner, Crescent Capital, Chicago

“It was widely expected and encouraging that this was a unanimous decision. It represents the most aggressive series of Fed moves since Volker.”

“Anything other than the result that told us would have been a negative surprise. Too little would have undermined confidence in the Fed and too much would have undermined confidence in the economy. It was well telegraphed and balanced properly against expectations.” “

“They are still very mindful of inflation risks. This should underscore their single-minded focus on inflation.”

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Compiled by US Finance & Markets Breaking News Team

Our Standards: Thomson Reuters Trust Principals.

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