Fed statement so far a ‘hawkish surprise,’ NatWest strategist says
“So far it’s hawkish,” said John Briggs of NatWest Markets. Besides boosting the terminal rate forecast above 5%, just two Fed officials in their forecast were below 5%. “That’s a hawkish surprise. It’s not like it’s a disperse group. I think we’re seeing a delayed reaction. We need to see how Powell characterizes it.” He also said the increase in the forecast for core PCE — the central bank’s preferred inflation measure — was a surprise.
Fed’s statement little changed from November
The latest policy statement from the Federal Open Market Committee is little changed from the November edition.
Notably, the central bankers left in language that “the Committee anticipates that ongoing increases in the target range will be appropriate.” This could be viewed as a hawkish sign by traders.
Check out the full comparison of the statements here.
Fed sees ‘terminal rate’ at 5.1%
The Federal Reserve indicated Wednesday it sees the so-called terminal rate — or the high water mark for the fed funds rate — at 5.1%. At that point, officials are likely to pause to allow the impact of the monetary policy tightening make its way through the economy.
The consensus then pointed to a full percentage point worth of rate cuts in 2024, taking the funds rate to 4.1% by the end of that year. That is followed by another percentage point of cuts in 2025 to a rate of 3.1%, before the benchmark settles into a longer-run neutral level of 2.5%.
Fed raises rates by 50 basis points, as expected
Stocks higher ahead of Fed decision
US stocks traded higher ahead of the Fed’s latest policy announcement. The Dow Jones Industrial Average was up 227 points, or 0.7%. The S&P 500 and Nasdaq Composite also popped 0.7%.
For more on how the stock market is trading, check out our live markets coverage.
A potential change in the Fed tide and what it means for some winning ETFs
The inflation and Federal Reserve rate hike tide appears to finally be turning, meaning some investors may want to reevaluate some of the strategies that worked in 2022.
The surprisingly cool consumer price index report led to a pullback in yields Tuesday. And while the Federal Reserve is expected to hike rates by half a percentage point on Wednesday, traders will be looking for clues about whether the central bank will pause its hikes next year.
That could put pressure on a group of ETFs designed to counter inflation or rising rates — or both — that has attracted significant investor interest this year.
Check out our full list on CNBC Pro.
Fed has to walk a fine line
The Fed has to walk a fine line, as it tries to slow down its pace of rate hikes while signaling the fight against inflation is still far from over.
“I don’t think they can claim any victories on inflation yet. I think they are going to be very, very careful before they can do that,” said Aneta Markowska, chief financial economist at Jefferies. Earlier this year, she said it had seemed inflation was peaking. “It looked like it was over, and it came roaring back.”
What to expect from the Fed
The Federal Reserve is slated to deliver its final policy decision of 2022 in less than an hour.
The central bank is widely expected to raise rates by 50 basis points, or half a percentage point, after four straight 75 basis-point hikes. Chair Jerome Powell is also slated to hold a news conference after the Fed’s announcement, and investors will look for clues on what the central bank will do next — especially after the latest consumer price index report showed signs of inflation slowing.
Additionally, the Fed is set to release it latest “dot plot,” which shows where central bank officials expect rates to be over the next few years. Investors will comb through that data to gauge where the so-called terminal rate — the high water mark for rates — will be.
—Fred Imbert, Jeff Cox