How does Wall Street view the July Federal Reserve interest rate meeting?
Wall Street's perspective on the July Federal Reserve interest rate meeting
Author: LianGuaiBitpushNews Mary Liu
On Wednesday afternoon Eastern Time, the Federal Reserve approved a 25 basis point rate hike, the 11th rate hike in 17 months, pushing the federal benchmark lending cost to its highest level in 22 years.
Investors are watching for signs that this could be the last rate hike of this cycle, although policymakers indicated at the June meeting that there would be two more rate hikes this year, the financial markets have already priced in the possibility that there will be no more rate hikes this year.
The S&P 500 index closed basically flat on Wednesday, while the tech-heavy Nasdaq index dipped slightly. The Dow extended its winning streak for the 13th time, rising 82 points, or 0.2%, marking the longest consecutive gain since January 1987. BTC rose 0.8% in the past 24 hours, with a trading price of $29,470. Ethereum rose slightly by 0.5%.
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Additional policy tightening
A recent survey conducted by Reuters of 106 economists showed that most respondents expect today’s rate hike to be the last of this cycle, but the Fed’s projections suggest otherwise.
Matt Kunke, an analyst at GSR Research, a cryptocurrency trading firm and liquidity provider, pointed out that the Summary of Economic Projections (SEP) released by the central bank in June showed that the median forecast of Fed officials is for two more rate hikes this year. Kunke said, “The market has yet to fully accept this view and continues to imply a greater likelihood of one rate hike (about 65%) than two rate hikes (about 27%).”
Powell stated at the press conference that the central bank has not made any decisions regarding future rate hikes, but he made it clear that the fight against inflation is not over.
Data released by the US Department of Labor shows that the year-on-year inflation rate in June was 3%, a significant drop from the peak of 9.1% in June 2022. However, the “core” inflation measure favored by the Fed, which excludes volatile food and energy costs, still grew by 4.6% compared to the same period last year in May.
The post-meeting statement by the Fed stated, “The Committee will assess the cumulative tightening of monetary policy, the impact of monetary policy on economic activity and the lag in inflation, as well as economic and financial developments.”
Some Fed officials, including Board of Governors member Christopher Waller and Dallas Fed President Lorie Logan, believe that the cumulative effects of previous rate hikes have been incorporated into the economy. As inflation remains above the Fed’s target, they believe that further rate hikes may be needed to further alleviate price pressures.
Fed Chair Powell reiterated this point at the press conference, stating that if the data indicates it is necessary, there may be further rate hikes in September. He said, “We may choose to keep rates unchanged at that meeting, but as I said, we will carefully assess at each subsequent meeting.”
Unlikely to Cut Interest Rates This Year
Powell also mentioned that inflation has slowed since mid-last year, but there is still a long way to go to reach the Fed’s target of 2%. He believes that the economy will achieve a soft landing and it is unlikely to cut interest rates this year.
Powell pointed out that some participants of the Federal Open Market Committee (FOMC) have included interest rate cuts in their economic forecasts for next year, but he stated, “This is a judgment we have to make, how confident are we that inflation will actually move back up to our 2% target.”
Powell still believes that the Fed can lower inflation without causing a sharp downturn in the economy, although he stated that “there is still a long way to go to be certain.”
When discussing the topic of interest rate cuts next year, Powell said that it will be a “judgment” made based on their own level of “confidence.”
How Professionals Interpret This?
Gurpreet Gill, a macro strategist at Goldman Sachs Asset Management, said on Wednesday that any new signs of inflation could mean that the Fed’s rate hike path will be extended. Given the uncertainty of the end of this rate hike cycle, Gill said that if more progress is made in reducing inflation, it will limit the rise in US Treasury yields. If inflation continues to cool, the 10-year Treasury yield may even decline. However, a strong labor market and economy will slow down the potential decline in yields.
Gill said, “Today’s Fed meeting is one of the most certain and uncertain meetings in this cycle. The 0.25% rate hike has been fully digested and widely expected by forecasters and investors. However, there is still disagreement among investors as to whether this marks the last rate hike in the current tightening action.”
In a report to clients, Goldman Sachs stated that the Fed’s statement does not mean a slowdown in future rate hikes, but the bank expects a rate hike in September.
Angelo Kourfafas, an investment strategist at Edward Jones, said, “The message conveyed to the market is that it didn’t have any driving effect. People are always worried about major surprises.”
Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management, said that Powell’s message is clear, indicating that the Fed will wait for economic data to make new decisions. “I don’t think the Fed will stop acting unless they see wage inflation declining.”
Phillip Colmar, global strategist at MRB LianGuairtners, said, “The market is mispricing by expecting a significant rate cut next year. If there’s anything different, it’s that further rate hikes are needed.”
Quincy Krosby, Chief Global Strategist at LPL Financial, said, “If the Fed, which relies on data, believes it is necessary, this statement opens the door for another rate hike, but the tone of the statement is more neutral rather than clearly dovish or hawkish.”
The Executive Partner of Generative Ventures, a Web3 investment fund, Lex Sokolin, stated that the Federal Reserve’s statement “will not change the narrative related to cryptocurrency. We are already in a safe-haven environment. With the ongoing Russo-Ukrainian conflict or a recession in the United States, things could become even more catastrophic, but the valuations of technology and finance remain relatively stable, with artificial intelligence potentially being an outlier.”
Sokolin expects “several more rate hikes” but believes that “the most challenging task, which is absorbing the supply chain impact of the COVID-19 pandemic and the associated money printing subsidies, has already been completed.”