(Bloomberg) – Stocks saw wild swings, with traders stunned by the slew of headlines that followed the Federal Reserve’s decision and Jerome Powell’s press conference, which eventually signaled at least one thing: Monetary policy will remain aggressively tightening.
The S&P 500 fell after bouncing between gains and losses following the announcement. The two-year rate topped 4%, breaking through that mark for the first time since 2007. The dollar rose.
Fed Chair Jerome Powell said officials were “strongly determined” to contain inflation after raising interest rates by 75 basis points for a third consecutive month and signaling a potential move of that magnitude in November. “We are deliberately moving our policy stance to a level sufficiently restrictive to bring inflation back to 2%,” he said. “I wish there was a painless way” to bring inflation down, Powell added, “but there isn’t.”
Across Wall Street, investors and strategists agreed that the Fed and Powell issued a hawkish policy statement and news conference. Officials now expect interest rates to hit 4.4% by the end of the year, a further increase of more than 1 percentage point from the last two sessions of the year. Some have suggested that the central bank has now acted aggressively to fight inflation and may have leeway to slow the pace of hikes sometime in 2023.
- “It appears that the market is wrestling with the possibility of higher rates at the end of the year on the one hand and the possibility that most of the rate hike cycle will complete earlier on the other. I think it’s fair to say that this was a mildly hawkish surprise, but markets expected to err on the hawkish side,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.
- “Today’s Fed action, combined with continued roller coaster-like market volatility, underscores investor unease amid heightened economic and market uncertainties caused by high inflation, corporate earnings warnings, geopolitical concerns and other factors affecting both the Wall Street and Main Street heavily. said Greg Bassuk, Chief Executive Officer of AXS Investments.
- “They have a short window of opportunity to trade aggressively, and they seem eager to take advantage of it,” said Jan Szilagyi, co-founder of Toggle AI, an investment research firm.
- “The Fed’s early releases from the September meeting are clearly hawkish,” said Evercore’s Krishna Guha. “The macro projections signal an increased risk of a harder landing.”
- “The Fed was late in recognizing inflation, late in starting to raise interest rates and late in unwinding asset purchases,” said Greg McBride, Bankrate’s chief financial analyst. “They’ve been playing catch-up ever since. And they’re not done yet.”
- “The market seems hopeless that it would hear an indication of an end to rate hikes on the horizon, but we certainly didn’t get that today,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “It’s important to keep in mind that Fed policy operates with a lag, so it may be some time before we see inflation getting close to the Fed’s target.”
Read: Fed delivers third straight major hike, more hikes ahead
Important events this week:
- Bank of Japan monetary policy decision, Thursday
- The Bank of England rate decision on Thursday
- US Conference Board benchmark index, Initial Jobless Claims, Thursday
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Here are some of the key movements in the markets:
- The S&P 500 fell 1% at 3:38 pm New York time
- The Nasdaq 100 fell 1%
- The Dow Jones Industrial Average fell 1%
- The MSCI World Index fell 1%
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 1.2% to $0.9856
- The British pound fell 0.8% to $1.1288
- The Japanese yen was little changed at 143.80 per dollar
- The 10-year government bond yield fell six basis points to 3.51%
- The 10-year German government bond yield fell three basis points to 1.89%
- The 10-year UK government bond yield rose 2 basis points to 3.31%
- West Texas Intermediate Crude fell 0.7% to $83.39 a barrel
- Gold futures rose 0.8% to $1,684.50 an ounce
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