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PremiumUS Fed Reserve Meeting: The US Federal Reserve announced its interest rate decision today after a two-day Federal Open Market Committee (FOMC) meeting and left the benchmark interest rates unchanged at 5.25 per cent - 5.50 per cent. US Federal Reserve Chairman Jerome Powell-led FOMC was widely expected to keep the interest rate unchanged after having raised its policy rate by 525 basis points since March 2022 to the current 5.25 per cent-5.50 per cent range, despite persistent US inflation rate levels exceeding the central bank's target range while the US economy remains resilient.
Stay tuned to our US Fed Meeting Live blog for the latest updates on FOMC meeting outcome.
US Fed Chair Powell-led FOMC will meet now on October 30 - November 1 to deliberate for the next set of policy decisions.
The US dollar index, which measures the currency against a basket of rivals, was 0.09 per cent higher at 105.21, after having been as low as 104.66 earlier in the session. The index rose for its ninth straight week last week, its longest winning streak in nearly a decade as resilient US growth has fueled a rebound in the dollar.
Treasury two-year yields climbed to the highest level since 2006 and stocks retreated, with the Federal Reserve signaling interest rates will be higher for longer after deciding to stay on hold Wednesday. Swap contracts priced in fewer rate cuts next year than previously anticipated. The S&P 500 pushed lower, while the tech-heavy Nasdaq 100 underperformed.
Fed Chair Powell said that rising bond yields do not appear to suggest a lack of market confidence that central bank officials will fail to bring inflation back down to target.
The jump in market borrowing costs is "not because of inflation," Powell said at his press conference following the latest FOMC policy meeting.
Instead, higher yields, which are at levels last seen before the global financial crisis a decade and a half ago, reflect market views of better growth and the impact of higher Treasury bond supply, Powell said.
Gold slightly pared gains on Wednesday after the Fed held interest rates unchanged but struck a hawkish stance for future policy. Spot gold was up 0.6 per cent at $1,942.19 per ounce after rising as much as 0.9 per cent earlier in the session. US gold futures settled 0.7 per cent higher at $1,967.10, according to news agency Reuters.
Oil prices fell about 1 per cent on Wednesday, extending earlier declines, after the FOMC left interest rates unchanged as widely expected. Interest rate hikes to tame inflation can slow economic growth and reduce oil demand. Brent futures for November delivery fell 68 cents, or 0.7 per cent, to $93.66 a barrel, while US West Texas Intermediate crude (WTI) for October delivery fell 68 cents, or 0.8 per cent, to $90.52.
Wall Street oscillated after the US Federal Reserve held key interest rates unchanged as widely expected, and revised economic projections higher, even as Chairman Powell warned the battle against inflation was far from over. The Dow Jones Industrial Average rose 148.43 points, or 0.43 per cent, to 34,666.16, the S&P 500 lost 3.86 points, or 0.09 per cent, to 4,440.09 and the Nasdaq Composite dropped 49.03 points, or 0.36 per cent, to 13,629.15.
Powell said that while some things are out of the central bank's control there is a good chance the Fed's aggressive rate hikes will not send the economy into a downturn. "I’ve always thought the soft landing was a plausible outlook," Powell said at a press conference after the rate setting Federal Open Market Committee decided to hold rates steady, meeting expectations. He said his outlook remains in place but cautioned other factors could affect the Fed's outlook.
There is a "long way to go" in bringing inflation sustainably down to policymakers' two percent target, US Federal Reserve Chair Jerome Powell said on Wednesday. He added that the US central bank is "highly attentive" to risks that high inflation poses to its mandate, at a press conference after the Fed announced its decision to hold interest rates steady as the effects of existing policy ripple through the economy.
FOMC signals borrowing costs will likely stay higher for longer after one more hike this year. It estimates an additional 25 basis points (bps) rate hike before the end of the year to bring down inflation.
US Fed meeting outcome: FOMC holds rate unchanged - Read full text from policy statement.
Policymakers see the US gross domestic product (GDP) growing 2.1 per cent this year, a notable upgrade from the 1 per cent growth projected in June, and expanding by 1.5 per cent next year. Meanwhile the unemployment rate - which is currently at 3.8 per cent - is seen peaking at 4.1 per cent in 2024 - and remaining there for 2025 - versus the 4.5 per cent high-water mark seen in June.
The policymakers' inclination to keep rates high for an extended period suggests that they remain concerned that inflation might not be falling fast enough toward their 2 per cent target.
The US Federal Reserve unanimously voted to keep interest rates at a 22-year high-mark ---between 5.25 per cent to 5.5- per cent, while forecasting an additional rate hike before the end of the year to bring down inflation.
FOMC to deliver verdict shortly; all eyes on Fed Chair Jerome Powell
Pacific Investment Management Company LLC (PIMCO) believes that the market may be ignoring the risk of at least one more rate hike from the US Fed before the year-end and a looming US recession. At this juncture, safe-haven assets may be preferred plays. "Markets may be underestimating the risks of both a US recession and one more interest-rate hike from the Federal Reserve, making haven assets a preferred play," Bloomberg reported, quoting PIMCO saying so.
US inflation in August rose for the first time since June 2022, rising to 3.7 per cent as a sharp increase in energy prices pushed prices up toward the end of the summer. The rise in prices still remains far below the decades-high inflation rates that were seen last summer, when the rate peaked at 9.1 per cent in June, according to data released by the US government.
Treasury Secretary Janet Yellen said that the US growth needed to slow to a pace more in line with its potential rate to bring inflation back to target levels since the economy was operating at full employment. But demand-supply imbalances in the labor market have abated, she said, which was a healthy sign for the economy.
Advancing issues outnumbered decliners by a 3.58-to-1 ratio on the NYSE and a 1.59-to-1 ratio on the Nasdaq. The S&P index recorded 10 new 52-week highs and four new lows, while the Nasdaq recorded 33 new highs and 140 new lows
Traders currently see it as 99 percent likely that the FOMC will hold off on hiking interest rates on Wednesday, and have assigned a roughly 70 percent chance it will vote to do the same at its next meeting in November, according to data from CME Group, according to news agency AFP.
The Fed's rate decision will be followed half an hour later by a press conference with Fed Chair Jerome Powell, which will be closely watched for hints on the path of future rate decisions. The FOMC will deliver its verdict at 2 pm EST or 11:30 pm IST.
The US Fed has hiked interest rates 11 times hikes since March last year.
European stocks gained ground on Wednesday while US Treasury yields dipped after reaching multi-year highs as recent surging oil prices stoked inflation worries, setting the scene for the Federal Reserve to project rates staying higher for longer. Two-year Treasury yields were down 3.5 basis points in London trade at 5.07 per cent, having risen sharply on Tuesday, when five- and 10-year Treasury yields reached 16-year highs.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services believes the Fed will likely hold rates this time but the tone of the Fed commentary will likely be a bit hawkish since inflation continues to be high despite some easing.
Vijayakumar anticipates one more rate hike of 25bps in the next meet and a hold thereafter. "The Fed always responds to incoming data. However, the current trend indicates the possibility of a rate cut only by the second quarter of the next year (Q2CY24)," said Vijayakumar.
Nigel Green of deVere Group believes this is the time for the Fed to stop, not pause, rate hikes. “The time lag for monetary policies is incredibly lengthy. It takes around 18 months for the full effect of rate hikes to make their way into the economy.
“We’re now starting to see the drag effects on the US economy with households and businesses becoming considerably more prudent. In addition, investors are becoming more and more concerned that additional hikes could steer the US economy into a recession."
He concludes: “The battle against inflation is being won – but battles like this are never won in a totally straight line – they go up and down incrementally, but the trajectory is clearly favorable, and the case for stopping rate hikes is compelling.
Brent futures for November delivery fell 11 cents, 0.1 per cent, to $94.23 a barrel. US West Texas Intermediate (WTI) crude for October remained unchanged at $91.20. The WTI contract for October expires on Wednesday. WTI crude futures for November, which will soon be the U.S. front-month, was up about 2 cents to $90.49.
All major S&P 500 sectors rose, with real estate and industrials leading gains, up 0.8 per cent and 0.7 per cent, respectively. In early US trade hours, the Dow Jones Industrial Average was up 105.32 points, or 0.31 per cent, at 34,623.05, the S&P 500 was up 12.22 points, or 0.27 per cent, at 4,456.17, and the Nasdaq Composite was up 25.78 points, or 0.19 per cent, at 13,703.97.
The FOMC released its previous meeting minutes on 16th August, and the official’s language strongly implied that its path forward will be data-dependent. The Fed said inflation remains “unacceptably high" and noted “significant upside risks to inflation, which could require further tightening."
Growth in consumer spending and other signs of economic resilience suggest that the Fed might have to restrict further money supply to bring back inflation to central bank’s target of 2 per cent.
Over the last one year, interest rates across board has been on a rise and market participants are waiting for more signs to get clarity on whether we are moving towards a ‘long-pause’ before Fed decides to cut rates, said Motilal Oswal.
It is not only the Fed but also other major central banks whose focus has been to bring down inflation without sending the economy into recession i.e. soft-landing, according to the brokerage firm.
Wall Street stocks advanced early Wednesday ahead of the Fed Reserve policy outcome later today. The market is betting heavily that the US central bank will hold steady on rates, but the focus will be on whether Fed Chair Jerome Powell signals a high chance of another rate hike this year.
About 25 minutes into trading, the Dow Jones Industrial Average was up 0.4 percent at 34,660.68. The broad-based S&P 500 gained 0.3 percent to 4,458.71, while the tech-rich Nasdaq Composite Index jumped 0.3 percent to 13,719.06.
Gold prices were subdued on Wednesday as investors remained cautious ahead of the Federal Reserve's policy decision, where the central bank is expected to stay put on interest rates, but prospects loom for further hikes later this year. Spot gold was steady at $1,930.19 per ounce, holding below its highest level since September 5 reached on Tuesday. US gold futures eased 0.1 per cent to $1,950.90.
US bond yields surged to 16-year high levels and fears of high crude oil prices fueling commodity inflation also hit the investor sentiment, according to analysts. Fresh foreign fund outflows and caution ahead of a host of interest rate decisions from global central banks also added to the overall bearish trend. Besides the US Fed meeting, the BoE (Bank of England) and the BoJ (Bank of Japan) are also scheduled to meet this week.
Ahead of the US Fed policy outcome, foreign institutional investors (FIIs) cumulatively bought ₹15,769.17 crore of Indian equities, while they sold ₹18,879.86 crore --- resulting in an outflow of ₹3,110.69 crore, according to NSE data.
The US economy has remained solid despite the Federal Reserve’s aggressive tightening in the last one and half year. Higher borrowing cost could lead to a situation like ‘hard-landing’; which currently looks out of sight as economic numbers have been beating estimates.
Demand across the US economy remains firm and that remains one of the key reasons to dodge a recession. Retail sales number in the last few months also suggest that there has been sustained recovery. Also, recent economic data is showing warning signs that higher interest rates may finally be starting to take a toll on the labor market.
After 11 interest rate hikes since March last year, inflation in US has fallen sharply but remains stuck stubbornly above the Fed's long-run target of two percent per year -- keeping pressure on officials to consider further policy action. Despite rising slightly on energy costs, inflation remains well below last year's peak, while economic growth remains robust and the unemployment rate sits close to record lows -- raising hopes the Fed can slow price increases without triggering a downturn.
US equity futures edged higher as traders awaited a Federal Reserve interest rate decision that will be scrutinized more for the policy outlook than a widely expected pause in hikes. In Europe, stocks rose and the pound weakened after British inflation slowed unexpectedly. Sterling fell as much as 0.5 per cent against the dollar to its lowest level since May as traders bet that the Bank of England is nearing the end of its hiking cycle, according to Bloomberg News.
In the upcoming meeting market participants have discounted that the central bank is expected to take a pause and is going to be narrative of the Fed governor that will drive a move in currencies, commodities and US treasuries, according to domestic brokerage Motilal Oswal.
Inflation has been the key measure to evaluate central bank action and focus on growth has taken a back seat. Inflation has retraced in last few months after hitting the highest in September 2022, but the question remains that will inflation recede further or will it turn around and continue to move higher?
The FOMC will also update its long-term economic growth projections, which include forecasts for GDP growth, unemployment rates, interest rates and inflation. The impact of Fed tightening is still having a negative effect on the economy and caution is warranted as growth is slowing.
Investors are betting that the Fed could be nearing its rate-hiking cycle, assigning just a 30 per cent chance to a November increase. If the chair does anything to disabuse the market of that sentiment, it would be meaningful, according to domestic brokerage firm Motilal Oswal.
Today, the Federal Reserve is expected to keep rates unchanged and will continue to roll-off its $8.1 trillion balance sheet. The central bank will continue to allow up to $60 billion in Treasury securities and $35 billion in agency mortgage-backed securities (MBS) to mature and roll off its balance sheet per month, said the brokerage.
Sensex and Nifty settled with losses on Wednesday, September 20, extending the decline into the second consecutive session amid mixed global cues ahead of the US Fed policy outcome.
Sensex closed with a loss of 796 points, or 1.18 per cent, at 66,800.84 while the Nifty ended below the 20,000 mark at 19,901.40, down 232 points, or 1.15 per cent.
The outcome of the US FOMC meeting for September 2023 will be crucial in determining the benchmark lending rates in the US. The meeting outcome is set to be released on September 20, at 2 pm Eastern Time, or 11:30 pm Indian Standard Time
The market might have discounted the possibility of a pause by the Fed in September. So, the market may not react to the move. However, the Fed Chair's commentary on the inflation trajectory and growth will be closely observed by the markets.
"Investors will analyse the outcome and the accompanying comments for hints about the probable timing of the rate hike cycle and the Fed's view on the job markets, inflation and economic growth," said Deepak Jasani, Head of Retail Research, HDFC Securities.
Jasani said global markets, including India, are expecting the US Fed to maintain rates at their September 19-20 meet and hence if it comes true, by itself it may not impact their trajectory. However in case there is any surprise (positive or negative) in the Fed's commentary, then it could have an impact on Indian markets, though less than that in other developed economies. Read here
The US Federal Reserve is widely expected to keep its current interest rates unchanged during the meeting on September 19-20 despite persistent inflation levels exceeding the central bank's target range while the US economy remains resilient. The US Fed has been raising rates since March 2022 and this could be the second time since then that the Fed may maintain a pause on interest rate hikes. While a pause seems highly likely, the possibility of a rate cut is extremely feeble at this juncture.
Markets across the globe will closely watch what the US Fed Chairman Jerome Powell says about inflation and the US economy.
The US Federal Reserve Chairman Jerome Powell-led Federal Open Market Committee (FOMC) will announce its September monetary policy decision today. The two-day FOMC meeting began on September 19 and will end today.
