Stocks saw some wild volatility, as traders were flooded with several headlines following the Fed’s decision and ended up pointing out at least one thing: Policy will remain tight too tight – making the prospects for a soft landing look increasingly elusive.
The S&P 500 finished near session lows, pushing its decline from January’s record to more than 20 percent. The scale faded in the wake of the Fed’s announcement, rising 1.3 percent at one point. Two-year Treasury yields crossed 4 percent, breaking that level for the first time since 2007. The dollar rose.
Jerome Powell pledged that officials would crush inflation after they raised interest rates by 75 basis points for the third time in a row and pointed to more aggressive increases than investors had expected. Powell said his main message is that officials are “deeply intent” to bring inflation down to the Fed’s 2 percent target, and added that we “will continue to do so until the job is done.” The phrase was based on the title of former Federal Reserve Chairman Paul Volcker’s memoir “Keeping at It.”
“Jerome Powell almost channeled his inner Paul Volcker today, talking about the strong and rapid steps the Fed has taken, and will likely continue to take, as it attempts to eliminate painful inflation pressures and stave off a worse scenario later on,” said Seema Shah, chief strategist. Global Investors at Principal Global Investors “With new rate expectations, the Fed is engineering a tough landing – a soft landing is almost out of the question.”
Officials expect rates to reach 4.4 percent by the end of this year and 4.6 percent in 2023, a tighter turnaround in their so-called point plot than expected. That suggests a fourth straight hike of 75 basis points may be raised for the next meeting in November – about a week before the US midterm elections.
- “We think markets, and by extension the economy, will become ‘sick’ of a lot of tightening, if growth (and employment) slows significantly in tandem with these tougher policy moves,” said Rick Rieder, chief investment officer at BlackRock Global. fixed income.
- “Today’s Fed actions, combined with ongoing roller-coaster-like market volatility, underscore investor unease amid bloated economic and market uncertainty driven by high inflation, corporate earnings warnings, geopolitical concerns and other factors heavily impacting both Wall Street and Maine. Street, said Greg Pasock, CEO of AXS Investments.
- “They have a short window to act aggressively, and they seem eager to use it,” said Jan Zellagi, co-founder of investment research firm Toggle AI.
- “The first batch of Fed releases from the September meeting is unequivocally hawkish,” Evercore’s Krishna Guha said. “The overall outlook indicates an increased risk of a more difficult landing.”
- “The Fed was late in recognizing inflation, late in raising interest rates, and late in initiating cancellation of bond purchases,” said Greg McBride, chief financial analyst at Bankrate. “They have been playing catch-up ever since. They are not finished yet.”
This week’s main events:
- Bank of Japan monetary policy decision, Thursday
- Bank of England interest rate decision, Thursday
- American Conference Board Leading Indicator, Initial Jobless Claims, Thursday
Here are some of the major moves in the markets:
- The S&P 500 was down 1.7 percent as of 4 p.m. New York time
- The Nasdaq 100 index fell 1.8 percent
- The Dow Jones Industrial Average fell 1.7 percent
- The MSCI World Index fell 1.5 percent
- The Bloomberg Spot Dollar Index rose 0.7 percent
- The euro fell 1.2 percent to 0.9847 US dollars
- The British pound fell 0.9 percent to $1.1281
- The Japanese yen was little changed at 143.88 per dollar
- The yield on the 10-year Treasury fell six basis points to 3.51 percent
- Germany’s 10-year bond yield fell by three basis points to 1.89 per cent
- The UK 10-year bond yield advanced two basis points to 3.31 per cent
- West Texas Intermediate crude fell 0.7 percent to $83.34 a barrel
- Gold futures rose 0.6 percent to $1,681.40 an ounce