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PremiumUS FOMC meet outcome: Federal Reserve Chairman Jerome Powell-led Federal Open Market Committee (FOMC) voted Wednesday to pause its aggressive campaign of interest rate hikes despite "elevated" inflation, while indicating that another sharp increase could be needed before year-end.
After 10 straight increases since March 2022, the Fed's rate-setting committee voted to hold its benchmark lending rate between 5.0 per cent and 5.25 per cent, the central bank said in a statement. Holding interest rates steady gives policymakers on the FOMC time "to assess additional information and its implications for monetary policy," the Fed said.
The US central bank began its two-day policy meeting on June 13 to set its benchmark lending rate amid cooling inflation in the world’s largest economy. The FOMC, consisting of twelve members, will announce its decision on interest rates on June 14. The Fed has raised interest rates 10 times since March 2022 as it grapples with inflation which still remains well above its long-term target of 2 per cent.
Gold prices pared gains after the Federal Reserve kept interest rates unchanged, as widely expected, but pointed to more rate hikes down the year, Reuters reported.
Spot gold was up 0.3% at $1,949.89 per ounce by 03:03 p.m. EDT (1903 GMT). US gold futures settled 0.5% up at $1,968.9.
Gold prices are highly sensitive to rising US interest rates, as that increases the opportunity cost of holding non-yielding bullion.
The rate outlook and the projections are likely to lead investors to expect a resumption of quarter-percentage-point rate increases beginning at the next policy meeting in July, which Powell suggested is possible as the Fed sets rate policy meeting by meeting.
Oil prices fell 1.5 per cent on Wednesday after the US Fed projected more interest rate hikes this year, worrying markets about demand just hours after government data showed an unexpected, large build in US crude oil stocks.
Brent crude futures settled $1.09, or 1.5 per cent, lower at $73.20 a barrel, while U.S. West Texas Intermediate (WTI) crude closed $1.15, or 1.7 per cent, lower at $68.27.
Both benchmarks had climbed more than 1.5 per cent earlier in the session. They rose more than three per cent the previous day on expectations of rising fuel demand after China's central bank lowered a short-term lending rate.
Unemployment is forecast to average 4.1 per cent in the fourth quarter, compared with 4.5 per cent projected in March, said US Fed. The official jobless rate stood at 3.7 per cent in May.
For 2023, the median estimate for US gross domestic product (GDP) growth was marked up to 1 per cent from 0.4 per cent in March.
Bond traders are wiping out bets that the Federal Reserve will lower interest rates this year after the central bank held its key rates steady and signaled more monetary tightening would likely follow to cool inflation. The rates on swap contracts referencing future Fed policy meetings now reflect a peak rate of 5.32 per cent in September, while the December 2023 contract’s rate jumped to about 5.23 per cent, according to Bloomberg.
Qatar’s central bank followed the Federal Reserve’s decision to hold interest rates in order to protect its currency’s peg against the US dollar. Policymakers in the Gulf have little room to maneuver due to the greenback-pegging policy and tend to move in lockstep with the US central bank decisions. Though, cost pressures in the Gulf have been relatively muted in comparison to the US.
"We didn't make any decision about going forward including what would happen at the next meeting... We didn't decide or really discuss anything about 'going to every other meeting' kind of approach," Jerome Powell said.
"Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to two percent over time," Powell said at a press conference after the rate decision was announced.
The level of 5.6 per cent is pretty consistent with where it was trading before before banking turmoil in March. Any forecast about inflation coming down this year will contain a big dose of housing disinflation, said Chair Powell. The housing services disinflation will be a little slower than we would have expected, he added.
July meeting will be a live meeting, said US Fed Chair Powell
Key to non-housing services disinflation is to get loosening in labor market conditions, said Powell. Need to see loosening of labor market conditions continue, he added.
The Fed’s move to leave its benchmark rate at about 5.1 per cent, its highest level in 16 years, suggests that it believes the much higher borrowing rates it’s engineered have made some progress in taming inflation.
Fed Chair Powell says: At this meeting, considering how far and fast we have moved, judged it prudent to hold rates steady.
-Reducing inflation is likely to require below trend growth, some softening of labor conditions.
We will take time for full effects of monetary restraint to be realized, especially on inflation; have been seeing effects of our policy tightening in housing, investment, said Powell.
We are highly attentive to risks high inflation poses to both sides of mandate, said Chair Powell. Getting inflation back to 2 per cent has a long way to go; acutely aware that high inflation imposes hardships, he added
Federal Reserve Chairman Jerome Powell begins press conference
The US central bank’s pause on rates has coincided with a steady drop in consumer inflation, from a peak of 9.1 per cent last June to 4 per cent as of May. But excluding volatile food and energy costs, the core inflation still remains high. Core inflation was 5.3 per cent in May compared with 12 months earlier, well above the Fed’s 2 per cent target.
The FOMC vote was unanimous. Out of the 18 policymakers, 12 penciled in rates at or above the median range of 5.5 per cent to 5.75 per cent, showing most policymakers agree further tightening is needed to contain price pressures. Both Powell and Fed Governor Philip Jefferson — nominated for vice chair by President Joe Biden — signaled they supported skipping a rate move in comments before this meeting, arguing they could afford to wait for more data as they assess the evolving outlook.
FOMC signaled they would likely resume tightening to cool inflation, projecting more increases than economists and investors expected. “Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy," the Federal Open Market Committee said in a statement.
The Dow Jones Industrial Average was down 1.18 per cent at 33,808.66 points, while the S&P 500 lost 0.68 per cent to 4,339.39. The Nasdaq Composite dropped 0.83 per cent to 13,460.86. The dollar pared declines against a basket of currencies. Yields on two-year Treasuries surged to the highest since March.
US Fed said tighter credit conditions for households and businesses likely to weigh on economic activity, hiring and inflation but extent of effects remains uncertain. It added that job gains have been robust in recent months, unemployment rate has remained low.
US Fed said inflation remains elevated, policy-setting committee remains highly attentive to inflation risks. It added that the committee is strongly committed to returning inflation to its 2 per cent objective.
US Treasury yields moved higher on Wednesday after the Federal Reserve kept interest rates unchanged, as was widely expected, but forecast another 50 basis points in hikes by the end of the year. The yield on 10-year Treasury notes was up 0.4 basis points to 3.843 per cent. The 10-year yield was on track to snap a three-session streak of gains. The yield on the 30-year Treasury bond was down 3.3 basis points to 3.908 per cent.
The US dollar cut losses on Wednesday after the Federal Reserve held interest rates steady but signaled that borrowing costs will increase by another 50 basis points by end-December. The dollar index was last little changed on the day at 103.23, after hitting four-week lows earlier in the session.
Federal Reserve Chairman Jerome Powell to address press conference after Fed statement.
Stocks turned lower on Wall Street after the Federal Reserve suggested that it may raise interest rates two more times this year, even though it kept rates steady on Wednesday. The S&P 500 was down 0.7 per cent after being modestly higher before the Fed’s announcement. The index had been riding a winning streak to its best level since April 2022. The Nasdaq fell 0.6 per cent and the Dow Jones Industrial Average lost 349 points, or 1 per cent. The high rates the Fed is using to fight inflation do so by slowing down much of the economy.
Federal Reserve has kept the key interest rate unchanged at 5-5.25 per cent. US central bank now foresees two 25 basis points hike by end of the year. This is the Fed's first pause on interest rates in 15 months
US Federal Reserve leaves key interest rates unchanged after 10 consecutive hikes; panel decides on status quo unanimously
Oil prices were little changed on Wednesday, giving up early gains, as markets weighed an unexpected, large build in U.S. crude oil against bullish demand growth forecasts and optimism over the Federal Reserve likely pausing interest rates. Brent crude futures were flat at $74.29 a barrel by 12:45 p.m. ET (1645 GMT). U.S. West Texas Intermediate (WTI) crude was up 1 cent at $69.43.
Both benchmarks had climbed more than 1.5 per cent earlier in the session. It rose more than 3 per cent the previous day on expectations of rising fuel demand after China's central bank lowered a short-term lending rate.
Gold gained on June 14 on a softer dollar in the run-up to the Federal Reserve's latest policy decision, with markets expecting the US central bank to keep interest rates unchanged following signs of slowing inflation. Spot gold was up 0.7 per cent at $1,956.93 per ounce. U.S. gold futures gained 0.6 per cent to $1,970.50. The dollar hovered around multi-week lows, making greenback-priced bullion more appealing to overseas buyers, after softer US consumer inflation data on June 13 cemented bets for a pause in the Fed's monetary policy tightening cycle.
UK's FTSE 100 rose on Wednesday as mining stocks extended gains, tracking higher metal prices, while Robert Walters' profit warning weighed on fellow recruitment firms listed on the midcap index. The resource-heavy FTSE 100 rose 0.1 per cent, its third straight session of gains. Investors awaited the US Federal Reserve's decision on interest rates later in the day, while the European Central Bank will announce its decision on interest rates soon.
‘’The two-day US FOMC meeting concludes today, with the status quo policy stance looking a script written on stone. The calls for a rate pause have got louder following a sharp slowdown in consumer price inflation released yesterday. We believe that the US Fed would breathe a sigh of relief as the core point of discussion i.e. inflation is moving to a lower trajectory and provides the central bank a leeway to adopt a “wait and watch" approach to its hawkish monetary policy. We would be closely monitoring the post-meeting commentary from the Fed Chair, Jerome Powell, for signs of a pivot to rate hikes. Additionally, the central bank’s reading of the financial stability and a probable slowdown in economic growth would be eyed for gauging the use of further ammunition by the Fed at its next policy meeting in July,'' said Manish Chowdhury Head of Research Stoxbox.
All eyes have shifted on US Federal Reserve which is preparing to announce its policy rates action later on Wednesday. Inflationary pressures have continued to ease but the economy is still not out of the woods. However, expectations of a pause for the first time in 15 months have heightened. Because if another rate hike is stored in the cards, US companies are likely to take a massive hit.
As per Bloomberg data, corporate treasurers are scrambling to cope with the impact of more than a year of central bank rate hikes, taking steps like cutting costs and paying down debt.
It added, interest costs at US companies rose by 22% in the first quarter compared to a year earlier, soon after the Federal Reserve started raising rates, according to a recent survey of about 1,700 businesses by Calcbench Inc. Those increases, alongside higher costs elsewhere — including for wages, materials and energy — are forcing companies to look for savings.
Bond yields plunged as traders expected the US Federal Reserve to keep interest rates unchanged which will be the first in 15 months as inflationary pressures have continued to ease.
The 10-year yield of US dipped to 3.78%. Similarly, Britain's 10-year notes dropped one basis points to 4.42%. However, Germany’s 10-year yield picked up by 3 bps to 2.46%.
According to a Reuters report, bonds reversed course on Wednesday, with yields dropping across the curve, after another inflation reading showed signs of cooling. The market for wagers on the outlook for central bank policy shows traders now expect the benchmark rate to peak in September, instead of July. The S&P 500 saw mild gains, trading closer to 4,400. Tesla Inc. fell after notching its 13th consecutive advance.
Wall Street traded between red to subdued note during the opening bell of Wednesday's trading session as investors prepare for the Federal Reserve's interest rate decision.
The Dow Jones Industrial Average tumble 167.42 points or 0.49% to open at 34,044.70. While the S&P 500 inched lower by 2.72 points points or 0.06% to open at 4,366.29. And the tech-heavy Nasdaq Composite index edged down by 2.76 points or 0.02% in the early deals to 13,570.56.
The Labor Department's producer price index dropped 0.3% in May 2023, which hints that inflationary pressures continue to ease in the face of repeated interest rate hikes by the Federal Reserve.
According to the data, the final prices rose 0.2% in April, and fell 0.4% in March.
In May, the decline in the final demand index can be traced to prices for final demand goods, which fell 1.6%. The index for final demand services increased 0.2%.
Also, prices for final demand less foods, energy, and trade services were unchanged in May after inching up 0.1% in April. For the 12 months ended in May, the index for final demand less foods, energy, and trade services increased 2.8%.
The US dollar is trading near a three-week low. The greenback plunged by 0.2% against its major counterparts. However, that supported the euro --- which inched up 0.1% to $1.0850, floating just below Tuesday's three-week high of $1.08235.
The cryptocurrency market traded broadly in the red ahead of the FOMC outcomes.
On CoinMarketCap, the global crypto market traded at $1.06 trillion, down by 0.48% over the last day. However, the total market volume over the last 24 hours is $29.42 billion, which makes a 3.15% increase.
Bitcoin's dominance dipped by 0.11% to 47.58%. The largest cryptocurrency traded at $25,967.59 lower by 0.58%.
However, Ethereum was marginally lower to nearly $1,746, while XRP dropped by nearly 9% and Cardano shed nearly 3%.
The weekly drop of Bitcoin is over 3.3%, while Ether plunged nearly 7%, BNB fell by over 9.4%, XRP is down by over 4%, Cardano declined nearly 19%, Dogecoin slipped by over 9.2%, TRON plummeted by over 6.4% and Polygon tumbled nearly 18%.
The Indian rupee strengthened 27 paise against the US dollar Wednesday to end at one month high levels on likely corporate dollar inflows and increased expectations of a pause at the Federal Reserve's policy decision. The local currency ended at 82.10 a dollar, 27 paise higher than the previous close of 82.37.
During the day, rupee hit an intraday peak of 82.0825 per dollar, its highest since May 11. The rupee notched gains for a fourth consecutive session, rising 0.34% in the day, its best daily performance since June 1. Read here
The favourable decline in US inflation, driven by lower energy prices, and speculation about a potential pause in the Fed rate hike campaign, brought comfort to global equities. However, the persistence of higher core inflation levels may compel the Fed to maintain its hawkish tone during today’s policy announcement with indication of a prolonged pause, says Vinod Nair, Head of Research, Geojit Financial Services.
Domestic equity benchmarks the Sensex and the Nifty50 ended in the green on Wednesday, extending their winning run into the third consecutive session ahead of the US Federal Reserve's interest rate decision.
The Sensex gained 85.35 points, or 0.14%, to close at 63,228.51, and the Nifty ended 39.75 points, or 0.21%, higher at 18,755.90.
BSE Midcap index hit a fresh all-time high of 28,105.88 in intraday trade before closing 0.20% higher at 28,046.55. The BSE Smallcap index also hit its fresh all-time high of 32,048.81 before closing 0.42% higher at 32,011.90. Read here
The Federal Reserve began its two-day policy meeting on June 13 to set its benchmark lending rate amid cooling inflation in the world’s largest economy. The Federal Open Market Committee's (FOMC) interest rate decision will be announced on June 14 at 2:00 p.m. ET or 11.30 IST. The meeting will be chaired by Jerome Powell. Read here
The US Fed is the world's most powerful central bank and its decision on federal funds rate have a significant impact on emerging markets like India. While the market has broadly discounted a pause in rate hikes this time, an in-line Fed outcome will have little impact on the market. However, if the Fed surprises the market and decides to lift rates, the market may see a sharp selloff. On the other hand, if the Fed takes a pause and signals that it is preparing for rate cuts in the subsequent policy meetings, the market may see strong gains. Read more
Gold prices edged higher on expectations of a interest rate pause at the Federal Reserve's policy meeting concluding later in the day, while a softer dollar also boosted bullion, Reuters reported.
Spot gold rose 0.4% to $1,950.09, while US gold futures rose 0.2% to $1,962.90.
The two-day US FOMC meeting concludes today, with the status quo policy stance looking a script written on stone. The calls for a rate pause have got louder following a sharp slowdown in consumer price inflation released yesterday. We believe that the US Fed would breathe a sigh of relief as the core point of discussion i.e. inflation is moving to a lower trajectory and provides the central bank a leeway to adopt a “wait and watch" approach to its hawkish monetary policy.
We would be closely monitoring the post-meeting commentary from the Fed Chair, Jerome Powell, for signs of a pivot to rate hikes. Additionally, the central bank’s reading of the financial stability and a probable slowdown in economic growth would be eyed for gauging the use of further ammunition by the Fed at its next policy meeting in July.
The US consumer prices rose by 4.0% YoY in May. The annual increase in the US consumer price index (CPI) was the smallest in more than two years. The CPI rose 0.1 percent in May, decelerating from 0.4 percent in April, the Labor Department said.
Excluding the volatile food and energy components, consumer inflation was up 5.3 percent over the last 12 months.
The dollar hovered around multi-week lows against the euro and sterling on Wednesday, after unexpectedly soft US inflation data cemented the view that the Federal Reserve will not raise interest rates later in the day, Reuters reported.
The dollar index - which measures the performance of the US currency against six others - was flat at 103.20, after touching its lowest since May 22 overnight at 103.04.
The US Federal Reserve has raised interest rates 10 times since March 2022 as it grapples with inflation which still remains well above its long-term target of 2%.
The Federal Open Market Committee's (FOMC) interest rate decision will be announced on June 14 at 2:00 p.m. ET or 11.30 IST.
