Shock of the Federal Reserve meeting: two additional rate hikes considered; The S&P 500 is holding up

The Federal Reserve skipped a rate hike, but signaled that its key interest rate will likely rise in July and beyond. Policymakers expect to end the reprieve from a meeting amid continued strength in the labor market, some easing of the banking crisis and a new bull market for the S&P 500.

X

New quarterly projections released with the statement from the Fed meeting indicate that policy committee members are united on the need for further hikes. The committee as a whole is also leaning heavily towards further upside after the July Fed meeting.

After the release of the Fed’s policy statement and projections, the S&P 500 initially fell but largely erased its losses.

“Virtually all” members of the Fed committee expect “further rate hikes to be appropriate this year,” Federal Reserve Chairman Jerome Powell said at the start of his 2:30 p.m. news conference. HEY.

Inflation risks are still on the rise, he said. “You don’t see much progress” in lowering underlying inflation.

While no decision has been made on a hike on July 26, Powell said, “I expect it to be a live meeting,” meaning a hike will be underway.

Federal Reserve rate projections

Now a solid majority, 16 of 18 Fed policymakers, expects rates to rise further in the range of 5.25% to 5.5%. That’s up from seven of 18 in March.

Projections show that 12 of the 18 Fed committee members expect at least two quarter-point moves in the 5.5% to 5.75% range. In March, only four members saw rates reach this level.

Prior to the Fed’s 2 p.m. release, markets were pricing in a 58.5% chance of a quarter-point hike on July 26. Shortly after 2 p.m., that figure rose to 71 percent. However, markets only see an 18% chance of another quarter-point rise in September.

In other words, the markets are not buying the Fed’s advice. The implication is that either the Fed is wrong or it is bluffing, perhaps hoping to stay the course on the S&P 500.

Indeed, the Fed could be wrong. Despite the “robust” job gains noted by the Fed, other labor market measures, such as hours worked, painted a much grimmer picture.

Fed policymakers now forecast GDP growth of 1% this year, up from the 0.4% growth expected in March.

S&P 500 reaction

After the Fed’s statement and projections, the S&P 500 initially fell about 0.7%, but narrowed the loss to just 0.1% in Wednesday afternoon stock action. Meanwhile, the Nasdaq composite turned slightly positive.