PremiumFed Meeting 2022: After raising interest rates by 75 basis points at four successive meetings, the US Federal Reserve delivered a 50 bps increase on Wednesday. Traders will now turn their focus to Thursday meetings of the Bank of England and the European Central Bank, where consensus is also for a 50 bps rate hike.
“Just like they say all good things come to an end...all ‘not so good’ things also comes to an end. The world was grappling with high inflation, not seen in the last 40 years. The Fed was late to act, but nevertheless, they did it with four steepest rate hikes of 75 bps each. However, the inflation figures coming in at 7.1%, the Fed Chief has delivered what he promised, a slowdown in rate hikes. The markets have not reacted positively because the Fed has increased its projection of terminal interest rate from 4.6% to 5.1%. Back home, how this will impact domestic interest rate regime is going to be interesting. RBI has dodged the being in a box and kept a free hand in deciding policy rates depending on the inflation and growth numbers at home and the US Fed’s interest rates. With US interest near its peak, RBI will also keep a close eye and could probably be the first central bank to stop hiking rates since it was amongst the first one to hike," said Apurva Sheth, Head of Markets Perspective & Research, Samco Securities
“Benchmark Indices are expected to open on a negative note as trends on SGX nifty indicate a gap down opening with 55 points loss. Asia-Pacific markets traded lower after the US Federal Reserve raised its benchmark interest rate by 50 basis points to the highest level in 15 years. US stocks closed lower in volatile trading on Wednesday following a policy announcement by the Federal Reserve that raised interest rates by an expected 50 basis points, but its economic projections see higher rates for a longer period," said Mohit Nigam, Head - PMS, Hem Securities.
The Hong Kong Monetary Authority raised its benchmark interest rate for a seventh time this year, a move that could spur the city’s biggest banks to raise their prime rates and pressure the property market further.
The base rate was increased by 50 basis points to 4.75% on Thursday after the Fed boosted its rate by the same magnitude to fight inflation. Hong Kong raises rates in line with the Fed due to the local currency’s peg to the greenback.
The dollar was on the back foot on Thursday, even as the Federal Reserve kept to its hawkish rhetoric after raising rates by half a percentage point, as investors were doubtful over how much the central bank would commit to putting the brakes on growth to curb inflation.
Australian shares lost ground on Thursday after the U.S. Federal Reserve raised interest rates by an expected 50 basis points but projected higher rates for a longer period.
The Fed projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023, as well as a rise in unemployment and a near-stalling of economic growth.
Federal Reserve Chair Jerome Powell says the central bank has more work to do in raising interest rates and vanquishing inflation. Investors on Wall Street seem to see the outlook for 2023 differently.
Asian stocks are poised to open on the back foot Thursday as US stocks fell after the Federal Reserve signaled interest rates will climb higher than anticipated next year.
Australian shares slid in early trading, while equity futures for Japan declined and contracts for Hong Kong eked out a gain. US shares snapped a two-day rally, ending off their lows in a volatile session.
- The Fed downshifted to a 50 bps hike, as telegraphed, following four straight 75 basis- point increases. The unanimous decision brought the target rate to a 4.25%-4.5% range, the highest level since 2007
- Everything else released skewed hawkish: The median forecast for rates at the end of 2023 is now 5.1%, higher than investor expectations and up from 4.6% in the prior round of projections in September; most officials did foresee rate cuts in 2024, with the median rate forecast at 4.1%, slightly higher than in September
- The distribution of forecasts for 2023 was on the higher side, with seven officials above 5.1%, 10 at 5.1% and two at 4.9%
- The unemployment rate is seen rising to 4.6% at end of 2023 and holding there in 2024, compared with the current 3.7% level; GDP growth seen at 0.5% in 2023, down from 1.2% in September
- The FOMC statement retained language saying “ongoing" hikes will be appropriate to reach “sufficiently restrictive" stance that returns inflation to 2% over time
The S&P 500 erased a gain of more than 0.5% after the Fed raised rates as expected to 4.5%. Stocks had rallied more than 6% since the last rate decision on the expectation that the central bank would be able to slow and possibly stop its tightening next year. That view took a hit with officials’ latest projections that the Fed funds rate will top 5% in 2023.
Stocks turned lower after the US Federal Reserve’s latest rate decision signaled the central bank sees work left to do in its battle against inflation.
The Federal Reserve reinforced its inflation fight by raising its key interest rate for the seventh time this year and signaling more hikes to come.
The Federal Reserve raised interest rates by half a percentage point on Wednesday and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023 as well as a rise in unemployment and a near stalling of economic growth.
US Fed unveils smaller, half-point interest rate hike
The S&P 500 rose 0.7% as of 1:37 p.m. Eastern. The Dow Jones Industrial Average rose 231 points, or 0.7%, to 34,337 and the Nasdaq rose 0.6%. Technology and health care companies were among the biggest gainers. Microsoft rose 1.7% and Eli Lilly rose 1.2%. Delta Air Lines rose 3% after it raised its fourth-quarter financial outlook and issued an optimistic forecast for 2023.
Following the Fed, the European Central Bank will announce its rate decision Thursday. Markets will also contend with decisions from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.
The stakes couldn’t be higher for Federal Reserve Chair Jerome Powell after a soft inflation report Tuesday supercharged an easing of financial conditions that had already been underfoot.
The US Fed will likely raise its key rate by 50 basis points to 4.25-4.50% at its last meeting of 2022 after four straight 75 bps increases following a surprise drop in inflation. The decision, scheduled for 2 pm ET, will be followed by Fed Chair Jerome Powell's press conference.
At 12:08 pm ET, the Dow Jones Industrial Average was up 208.24 points, or 0.61%, at 34,316.88, the S&P 500 was up 22.32 points, or 0.56%, at 4,041.97, and the Nasdaq Composite was up 61.82 points, or 0.55%, at 11,318.64.
European shares were subdued on Wednesday after hitting near one-week highs in the previous session.
Oil prices rose more than $2 today after OPEC and the International Energy Agency (IEA) both forecast a rebound in demand over the course of next year and as US rate hikes are expected to ease alongside slowing inflation.
Gold prices stalled today as caution ahead of the US Fed's policy decision due later in the day held investors back from making large bets. Spot gold was flat at $1,810.33 per ounce, as of 1656 GMT. US gold futures fell 0.2% to $1,822.10.
"At the end of the day, it's Jerome Powell, and the Fed, who will either give a green light for a modest Santa rally (for equities), or tell investors that Santa is stuck in a snow storm this year," noted SwissQuote analyst Ipek Ozkardeskaya.
Bitcoin spiked to $18,000 for the first time since the exchange FTX slid into a chaotic bankruptcy last month, with the world's largest digital currency also getting a boost from bets on a Federal Reserve downshift.
Markets expect the US Fed to slow the pace of hikes when it announces its decision at 2:00 pm EST (12:30 am IST) and raise its funds rate target range by 50 basis points to between 4.25% and 4.5%.
Susannah Streeter, senior markets analyst at Hargreaves Lansdown, said investors were in a "wait-and-see mood" ahead of the Fed rate decision. "There was that pop we saw in markets, but then there's a realization perhaps dawning that it's not necessarily going to be an easy path ahead ... it's a long way down," she said of US inflation.
Canada's main stock index slipped on Wednesday, as weakness in commodity-linked shares offset gains in utilities, while investors braced for another rate hike by the US Federal Reserve.
US Treasury yields were little changed to slightly lower on Wednesday ahead of a Federal Reserve decision widely expected to slow the pace of monetary tightening with a 50-basis-point rate increase at the conclusion of its two-day policy meeting later in the session.
The dollar hovered near its lowest levels since June against the euro and pound today, as traders awaited the Federal Reserve's interest rate decision.
At 9:53 am ET, the Dow Jones Industrial Average was up 137.28 points, or 0.40%, at 34,245.92, the S&P 500 was up 14.07 points, or 0.35%, at 4,033.72, and the Nasdaq Composite was up 20.00 points, or 0.18%, at 11,276.82.
Oil sharply pared gains as US crude inventories grew more than expected by the most since March last year. West Texas Intermediate traded near $76 a barrel after earlier gaining as much as 2.2% to top $77. US crude stockpiles rose more than 10 million barrels last week, as per an Energy Information Administration report today.
Euro zone borrowing costs rose today amid hawkish remarks from European Central Bank sources, while investors were cashing in on a bond rally the day before following US data.
The Fed releases its decision on interest rates later on Wednesday. The central bank is expected to increase the federal funds rate by 50 basis points to a range of 4.25-4.50%.
The Fed is one of a number of major central banks, including the Bank of England and the ECB, that releases its final monetary policy decision of the year this week.
Suman Bannerjee, CIO, Hedonova said, "The Fed is going to raise rates again by 50 basis points, after a series of 75 basis point hikes, the slower rate hike is expected. Most investors will criticize but I'm rooting for it. Yes, higher rates may slow down the economy; yes, it increases the chance of inflation; but what surely will happen is that inflation will get tamed."
CR Forex Advisors: Amid the mixed market expectation about the US CPI, a headline release at 7.1% and core at 6%, the fifth straight decline in a row has moved the economy far from the risk of surprise inflation spikes and closer to the Fed’s target of 2%. Finally, the impact of hikes is sinking sustainably. The DXY nosedived to a fresh near-term low around 103.15 levels as the data reinforced expectations the Fed to slow the pace of rate increases in today’s and upcoming meetings.
"We expect the US Fed to increase the benchmark rate by 50 bps this week. Any hike lower than 50 bps will be taken as positive for risk assets like EM equities, including Indian equities. Even with a 50bps hike, if the Fed Chairman comments that future action of the Fed will be data dependent, then the market will take it positively. But, if he mentions that inflation remains a major risk and the labor market remains tight, with a possibility of a second round impact on inflation from the tight labor market, then the markets might react negatively," said Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS.
“The question is, with inflation still at generational highs, will the Fed walk through that door?" Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “After an initially high-spirited response, the relatively muted reaction for stocks is likely attributable to pre-risk event positioning, prevailing bearish growth sentiment, technical factors and the devil in the details."
Wall Street stocks rose today ahead of the Federal Reserve's latest decision on interest rates. The S&P 500 rose 0.5% as of 10:11 a.m. Eastern. The Dow Jones Industrial Average rose 139 points, or 0.4%, to 34,246 and the Nasdaq rose 0.6%.
After a 50 basis-point increase in Fed’s policy rate later Wednesday was firmly priced in, traders remained on the edge over what signals policymakers may offer on when the hikes will stop and whether a rate cut is possible next year.
The US Federal Reserve's decision is scheduled at 12:30 am IST, followed by a press conference from Fed Chair Jerome Powell.
Download the App to get 14 days of unlimited access to Mint Premium absolutely free!
