The Federal Reserve raised its benchmark interest rates by 0.75% in its largest hike in 28 years as the battle against inflation rages on.
Powell stated he does expect the July meeting to see an increase of 50 or 75 basis points but that the Fed will continue to make decisions “meeting by meeting” and “continue to communicate our intentions as clearly as we can.”
This view contrasts the last few months of commentary, which suggested a hike greater than 50bps was off the table. ⛔
But as the Fed has stated all along, they remain data-dependent and last week’s record inflation prints suggested more aggressive action was needed to tame inflation. At least that’s what the bond market thought as U.S. Treasury yields hit new cycle highs. Well, today’s hike shows market participants were correct in their assessment.
In addition to reiterating their commitment to bringing down prices, members cut their 2022 economic growth outlook to 1.7%, down significantly from 2.8% in March. 📉
Despite this, their statement depicted an overall optimistic view of the economy, saying, “Overall economic activity appears to have picked up after edging down in the first quarter.” 💪
Skeptics say that the Fed is behind the curve, as it usually is, and that a soft-landing for the economy is unlikely. 🛬
To that point, many companies are not waiting around for the Fed to signal a recession may be ahead. Instead, we continue to see a growing list of layoffs/hiring freezes as companies get more defensive.
For example, Spotify is slowing hiring by 20%, Wealth Simple is cutting 13% of its staff, and Warner Bros Discovery is cutting nearly 1,000 ad sales jobs.
Meanwhile, in economic news., U.S. Business inventories are rising — which Target and other retailers have been telling us. 📦
U.S. retail sales fell 0.3% MoM as higher prices continue to hit consumers’ pocketbooks. 🛍️
Lastly, the National Association Of Home Builders/Wells Fargo Housing Market Index fell for the sixth straight month as rising rates and record-high prices continue to crimp demand. 🏠
Overall, the market appeared to take the Federal Reserve’s actions in stride today. Stocks, bonds, and crypto, which have been selling off aggressively, finally caught a bid. 📈
With that said, as we often see after policy decisions, the real market reaction typically takes a few days as investors adjust their expectations. 🤔
Also, it remains unclear whether the strong economy the Federal Reserve is seeing in its data matches the reality investors are gleaming from company reports and economic data.
Join the streams and let us know your thoughts about today’s Fed decision. 💭