- After Federal Reserve Chair Jerome Powell warned outsized rate hikes will be rare as authorities tighten their battle against sky-high inflation, stocks recovered, arresting a five-day slide that saw the S&P 500 lose 10% of its value.
- Treasury yields fell in lockstep with the dollar.
- As the central bank lifted rates by 75 basis points, the largest increase since 1994, equities pushed higher amid dramatic swings, and Powell warned officials may raise rates by that much in July or make a smaller half-point boost. While the Fed chair admits that "it will take some time" to get inflation back down, he is optimistic that "we will achieve it." His comments brought two-year treasury yields down as much as 24 basis points.
- On Wednesday, Powell and his colleagues stepped up their efforts to cool prices by raising the federal funds rate target range to 1.5% to 1.75%. Officials expect it to rise to 3.4% by the end of the year, meaning another 175 basis point tightening this year. The Fed also stated that it will continue to cut its large balance sheet by $47.5 billion per month, beginning on June 1st, and up to $95 billion in September.
- Barclays, which was one of the first large banks to change its Fed forecast for June to a 75-basis-point raise, expects the central bank to hike at a 50-basis-point pace in July. Meanwhile, T. Rowe Price Group, which manages $1.4 trillion in assets, advised investors to buy bonds now since they are at their "most appealing moment" in years.
Some of the key FOMC comments:
- Fed's Powell: The next meeting could well be decision between 50 bps and 75 bps.
- Fed Policymakers' projections show they expect to begin reducing rates in 2024.
- Fed median forecast shows 2022 inflation 5.2%, 2023 2.6%.
