The bitmap shows a strong rate-raising trajectory for the rest of 2022
The Fed’s point plot shows that central bankers are considering raising the federal funds rate to 4.4% by the end of this year. This may be a more aggressive pace than investors expected.
Since there are only two meetings left in 2022, that means that one of these events will generate another 0.75 percentage point increase. Many expected the Fed to reduce the size of its increases in the future.
– Jesse Pound
The yield on the two-year Treasury reaches 4.1% after the Fed hike
The yield on the two-year Treasuries – the most sensitive instrument of the Federal Reserve’s interest rate policy – jumped to a new high of 4.121%. It is the highest level since October 2007.
NatWest economist says hawkish Fed will remain tied ‘all the way through 2025’
The Fed’s interest rate forecast surprised some traders, as they were hawkish for longer than many in the market expected.
Prior to the announcement, the Fed Funds futures contract was pricing in a 4.51 target rate for the federal funds after the March 2023 meeting. The so-called “point chart” released by the Fed on Wednesday shows a peak of 4.6% in 2023.
It’s really hawkish,” said John Briggs of NatWest Markets. He said average rates are much higher than expected. “They basically say it’s front-loading but they stay tied up all the way through 2025.” In 2025, the average federal funds rate target is 2.9%.
“They are basically saying that rates have to go up and faster, and even if we have cuts in 24 and 25, they’re going to stay tied up until 2025. You won’t get them back to neutral until 2025. It’s very hawkish. It’s three years of hard-line politics.” . The average Fed funds forecast was still 3.9% for 2024.
– Patty Doom
Fed statement highlights ‘modest growth in spending and output’
The Fed’s updated statement shows that the central bank sees the US economy as strong, which could indicate that the Fed is comfortable raising interest rates significantly from here.
The new statement said that economic indicators “indicate modest growth in spending and production.” This is a change from the July statement, which said that “recent indicators of spending and production have eased.”
Check out the full changes here.
– Jesse Pound
The Fed will raise interest rates to an end point of 4.6% in 2023
The Fed’s “dot chart,” its forecast of a rate hike path, shows the central bank will raise interest rates to 4.6% in 2023 before it ends its tightening campaign.
The Fed raised its benchmark interest rate by three-quarters of a percentage point to a range of 3% to 3.25%.
Read more here.
– Darla Mercado, Yoon Lee
Stocks fall after the Fed announces a 75 basis point rate hike
The major averages gave up their gains and traded lower after the Federal Reserve announced a 0.75 percentage point rate hike. The Dow Jones Industrial Average was down about 240 points after 2 p.m. ET. The S&P 500 fell 0.8%, and the Nasdaq Composite lost 1%.
– Darla Mercado
The Federal Reserve raises interest rates by 0.75 percentage points, as expected
The Federal Reserve raised interest rates by 0.75 percentage points on Wednesday. It is the third consecutive increase in the rate of rise of this magnitude. The increase raises the central bank’s benchmark interest rate to a range of 3% to 3.25%.
The central bank raises interest rates while trying to rein in inflation. Investors have a receptive ear to what policy makers will have to say in their forecasts for the economy and the future course of interest rates.
Read more here.
Bond market extraordinarily volatile ahead of Fed’s announcement, as traders bet on a more aggressive rally
Short-term Treasury rates rose ahead of the Fed’s announcement at 2pm ET, as traders are betting that the central bank will raise the federal funds rate next year to a peak well above current levels.
The Fed is expected to raise interest rates by three-quarters of a point, and this would take the fed funds rate range from 3.0% to 3.25%.
In the futures market, traders raised their bets on the price level at which the Fed would stop hiking.
Ahead of the Fed meeting, Michael Schumacher, global head of macro strategy at Wells Fargo, indicated that fed funds would be raised to 4.51% at the March 2023 meeting, prior to the Fed meeting. On Tuesday, futures suggested the peak, or final price, would be 4.50%. The Fed’s latest forecast was for a final interest rate of 3.8% next year.
“Normally, you wouldn’t see this kind of action before the Fed meeting,” Schumacher said.
The two-year Treasury, which reflects the Fed’s tightening, rose above 4% on Wednesday for the first time since 2007.
He said December federal funds futures prices were at 4.24% by the end of the year. It was at 4.22% on Wednesday.
The Federal Reserve is expected to raise interest rates by 0.75 percentage points
The Fed is expected to raise interest rates by three-quarters of a percentage point, marking the third time in a row that it has raised rates by this size.
The move would raise the benchmark interest rate to a range of 3% to 3.25%, the highest level for the federal funds rate since early 2008.
Although the majority of market participants are pricing in a 0.75 percentage point increase, some are balancing the small odds of a full point hike, according to the CME FedWatch Tool.
Central bankers’ expectations of the economy and the path of future interest rates are likely to steal the limelight. Investors will be watching the Federal Reserve’s “point chart” of individual member price expectations, as well as its “final interest rate” — the point at which policymakers think they can stop for a stroll.
Read the full story here.
–Darla Mercado, Jeff Cox
The yield on two-year Treasury bonds rises to 4%
The yield on the two-year Treasury jumped to 4.006% shortly after 11:00 AM ET, just hours before the Federal Reserve’s decision on interest rates. This was the first time that the price of short-term bonds had reached 4% since 2007.
The two-year period is particularly important as the Treasury note is the most sensitive to Fed policy.
Market concern about the Fed’s next steps appears to be reflected in the action in the two-year note, according to Jeff Kjellberg, CEO of KKM Financial. He pointed to the sharp rise in Treasury yields.
“What’s interesting is the reversal, and with two years above 4%, we really appreciate that the Fed is going to be much more hawkish for a much longer period,” he said. “I think that’s a mistake.”