NEW YORK (Reuters) - The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, citing still elevated inflation as a rationale for what is now the highest U.S. central bank policy rate in 16 years.
The rate hike, the Fed's 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, and the accompanying policy statement left the door open to another increase.
"The (Federal Open Market) Committee will continue to assess additional information and its implications for monetary policy," the Fed said in language that was little changed from its June statement and left the central bank's policy options open as it searches for a stopping point to the current tightening cycle.
MARKET REACTION:
STOCKS: The S&P 500 pared losses and was recently down around 0.1% at 4563.94
BONDS: The two-year U.S. Treasury yield was down 4.8 basis points at 4.845%. The yield on 10-year Treasury notes was down 5.1 basis points to 3.861%.
FOREX: The US Dollar Index was down 0.3% at 101.02
COMMENTS:
GENNADIY GOLDBERG, HEAD, U.S. RATES STRATEGY, TD (TSX:TD) SECURITIES, NEW YORK
“The market's a little bit uncertain of this because changes to the statement were fairly limited. It really is all about J Powell at his press conference coming up."
“The only real change was the slight upgrade to economic activity from ‘modest’ to ‘moderate’ before people's eyes glaze over at that statement. That is a bit of an upgrade in Fed parlance, so it is policymakers saying that data has been coming in stronger than expected."
“It's interesting to see that alongside an unchanged characterization of inflation, even though they've been quite optimistic that inflation will be coming down, they've been quite happy with the last report on CPI."
“They're not willing to change the overall statement just yet. What it means is Powell is probably going to stay relatively hawkish in his remarks. I don't think there will be much of a change in tone from what we've heard from Powell over the last several appearances."
“From a market standpoint, it's very hard for markets to react to almost no change in tone of any kind. There should be a slight hawkish reaction to this, rates should be a little bit higher, but the market's going be waiting for Powell to decide that.”
ELLEN HAZEN, CHIEF MARKET STRATEGIST, F.L.PUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS
“If you look at the comparison of the June statement to the July statement, they literally changed a handful of words, almost no changes at all, so I would say what that means is they have communicated almost zero new incremental information through the statement. Therefore, we need to wait for the press conference to learn anything incremental.
"The only change is they changed the word modest to moderate and they changed it from they are keeping it flat to raising it by 25 basis points and that’s it, those are the only changes."
“It was unanimous, so they paused in June, that was a nod to the doves and now it was unanimous here with a hike and , so that was a nod to the hawks and what that means is they are leaving themselves open to take any action they want over the next couple of meetings.
“This is a very innocuous statement, it is the most innocuous I’ve seen and that is why the market hasn’t reacted.”
MICHAEL BROWN, MARKET ANALYST, TRADERX, LONDON
"A rather uneventful announcement from the FOMC, with the 25 bp hike markets expected being duly delivered, and few - if any - significant changes to the policy statement. In fact, this may well be, so far at least, the most uninspiring and unexciting decision of the cycle."
"Markets have, unsurprisingly, taken this in their stride, with attention now falling on Chair Powell's press conference, particularly as to any guidance that may be provided in terms of whether or not the FOMC will deliver the additional 25bp hike this year called for in the June dot plot."
JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET WEALTH ADVISORS, PALM BEACH, FLORIDA
"We haven't heard Powell yet at the conference, but based on the statement, it sounds like they're likely done for this cycle, which I think is probably one tightening too many."
"I think the Fed has already won the war on inflation, and perhaps they just want an extra move to make themselves comfortable."
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
“In Fedspeak, upgrading economic activity from modest to moderate seems inconsistent with the data. This was likely more of a hesitant hike than anything. The Fed’s forward guidance is only as good as its forecasts and those don’t have a great track record. Powell will likely try have the next meeting be like Schrodinger’s cat where it’s both alive and dead at the same time, but we all know they’re on hold.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
"No surprises. What the market expected, it got. The Fed raised (the Fed funds target rate) by a quarter point and the vote was unanimous, and the move puts rates at a 22-year high."
"The economy is moving along, with inflation still elevated and the job market is tight. There were some changes in the statement, nothing that would hint that the terminal rate would end in September. So, investors look forward to Jackson Hole."
"If you look at some of the recent data, manufacturing is stuck in recession, and it’s a consumer-driven market, that’s what the Fed is saying, more or less."
"People are looking for any slight hint that we’re close to the end of the tightening cycle. During the Q&A session they may press him on that."
"I think (the Fed is) done. They don’t want capital markets to explode, which could happen if they gave a dovish statement. So, they stayed hawkish. They want to gather more data."
"The war on inflation has not been won, but its’ certainly down from last year and the markets realize that."
GURPREET GILL, GLOBAL FIXED INCOME MACRO STRATEGIST, GOLDMAN SACHS ASSET MANAGEMENT, LONDON
"Paradoxically, today’s Fed meeting was one of the most certain and uncertain of the cycle. A 0.25% rate hike was fully priced in and widely expected by forecasters and investors. However, investors remain divided on whether this marks the last increase in the current tightening campaign."
"We think recent data is consistent with the US policy rate peaking in July, as core CPI inflation slowed sharply in June. But any renewed signs of inflation strength in key data like the Employment Cost Index released on Friday and upcoming PCE inflation releases still have potential to extend the hiking path."
"Given the uncertainty around when the Fed’s hiking cycle will conclude, we have limited exposure to US rates. We think further disinflation progress will limit the extent to which US Treasury yields will rise, while a resilient labour market and economy will temper the extent to which yields can fall."
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
"The knee-jerk reaction came from the two-year Treasury and the yields inched lower... suggesting that at least that important component of the Treasury market sees the possibility that the Fed is a little bit closer to the end. But the market understands the Fed may not be finished. In the equity market, the Dow continues its climb higher along with the small- and mid-caps.”
EDWARD MOYA, SENIOR MARKET ANALYST, OANDA, NEW YORK
"The statement went as expected. The Fed is most likely done. It's going to still push the narrative that more tightening might need to be done. For their policy to be effective they have to push that narrative. Once we see economic weakness they'll change their tune."
"Fed Chair Powell is going to suggest that for the time being that they need to assess more information for inflation. To get to 2% is going to be hard but there's good reason to believe that's going to happen."
"Markets are for the most part becoming more confident the Fed won't have to raise rates in September. We'll probably get the first negative GDP reading in Q4 and we'll start to see the market convinced we'll have small recession but it will be small. Then the market is going to be aggressive in pricing in rate cuts for early 2024. We'll see a strong case for that."