June Fed Meeting Outcome: Interest Rate Paused For First Time in 10 Months, But Fed Chair Still Hawkish
Key takeaways
- The Fed paused on interest rate increases for June in the ongoing battle to tame hot inflation that has been waging for months
- Headline inflation is now at 4%, but it’s still double what the Fed target is
- The S&P 500 finished flat and the Dow Jones fell 0.8%, but the Nasdaq managed to close 0.2% up
The Fed finally had some breathing room to pause interest rate hikes for a month, in a widely expected move from the markets and analysts. But the hawkish comments from Jerome Powell after the meeting threw investors into a tailspin, suggesting a long road ahead for the battle against inflation.
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What happened at the Fed meeting?
For the June meeting, the Fed decided to pause its monetary tightening policy for the time being to assess how the rapid rise in interest rates, which have gone from 0.1% to 5% — 5.25% in about a year, has affected the wider economy.
A pause became all but certain after the latest CPI data came in earlier this week, which confirmed headline inflation had fallen faster than expected to 4%, down from 4.9% the month before.
But what comes after hasn’t been so certain, with Fed officials in recent weeks suggesting a ‘skip’ rather than that the Fed was done with raising interest rates anytime soon. The Fed chair’s comments after the meeting added to the speculation.
Are interest rates coming down?
Thought June’s pause was good news? Think again. In a briefing after the meeting, Fed chair Jerome Powell confirmed no rate cuts are on the horizon this year and that the priority was getting prices of everyday items, like food and energy, stabilized for American households.
Powell cited core PCE inflation as one of the key factors. It hasn’t moved much in the last six months and even accelerated slightly for April to 4.697%. The CME FedWatch tool now puts the likelihood of a rate increase for July as 67%, while towards the end of the year, December has a 10% chance of a rate cut.
Because of the comments, the stock market had a doldrums day. The S&P 500 was about flat, while the Dow Jones Industrial Average lost 0.8%. The Nasdaq managed to rally to finish 0.2% up.
The bottom line
The Fed is playing a long game of chess when it comes to bringing down inflation. Its officials seem to think there’s still a long way to go, which is at odds with where the market’s head has been. We’ll have to wait and see what the data suggests to see if a rate cut could ever be a reality this side of the year.
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