- S&P 500 closes 1.46% higher post less hawkish Fed.
- However, analysts argue that financial asset prices will remain under pressure.
US stocks closed higher Wednesday after the Federal Reserve approved its biggest interest-rate increase in nearly 30 years. However, the relief came in the words of the chairman, Jerome Powell, when speaking at the post-meeting press conference.
He said that he does not expect 75bps moves to be common, which was the magnitude that they were hiked by on Wednesday. However, he did say that it may be necessary to raise rates by that magnitude again at the next meeting at the end of July if inflation has not moderated.
Powell said that front-loading rate increases over the next few meetings would give the FOMC more flexibility later in the year to slow down the pace of tightening if conditions allow it.
The Summary of Economic Projections now suggests another 175 basis points of increase by the end of 2022 to a median of around 3.4% and another 25 to 50 basis points of increase in 2023 to 3.8% before easing back to 3.4% in 2023. These levels are well above the 2.5% neutral rate.
- Fed swaps price 75bp rate hike for July; 140bp over July/Sept.
- US rate futures price in 93.4% chance of 75 bps hike in July; 55% probability of 50 bps rise in September after Fed decision – CME's FEDWATCH.
However, the expectations for overall PCE inflation were revised and are now sharply higher and the rates are expected to remain above the 2% target at least through that period. At the same time, expectations show slower growth and higher unemployment rates over the next three years than in the March SEP update.
Nevertheless, US stocks have breathed a sigh of relief, but ''until evidence emerges that inflation is peaking and on a sustained downwards track, financial asset prices will remain under pressure,'' analysts at ANZ Bank argued.