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The SPDR S&P 500 SPY is sliding Wednesday afternoon after the Federal Reserve raised its target range for the federal funds rate by 0.5%, bringing the new target up to a range of 4.25% to 4.5%.
What To Know: The Fed will continue to reduce its holdings of Treasury securities, agency debt and agency mortgage-backed securities on a monthly basis. The committee anticipates that ongoing increases in the target range will be appropriate to return inflation to its 2% goal over time.
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said in a statement.
All 12 Fed members voted unanimously in favor of the 0.5% hike.
Check This Out: Higher Inflation, Slower Jobs Market Ahead: Explaining The Federal Reserve’s Latest Decision To Raise Rates 0.5%
In a press conference following the decision on rates, Fed Chair Jerome Powell reaffirmed the central bank’s commitment to bringing inflation back down to its 2% goal. Although he acknowledged that recent data is encouraging, he indicated that it’s not enough.
“The inflation data received so far from October and November show a welcome reduction in the monthly pace of price increases, but it will take substantially more evidence to get confidence that inflation is on a sustained downward path,” Powell said.
Reactions From The Street: Early reactions to the print are pointing to a more hawkish-sounding Fed.
Edward Moya, senior market analyst at OANDA, noted that the federal funds rate is now seen eventually reaching 5.1%, which is up from the Fed’s September forecast.
“The dot plot has shifted higher as the Fed appears to be pushing back on the market’s expectation that they will eventually cut rates at the end of next year,” Moya said.
Any hope of a soft landing is gone, and the Fed appears to be committed to taking rates much higher, Moya added.
Thomas Hayes, chairman and managing member at Great Hill Capital, also highlighted the 5.1% terminal rate as an ominous sign of what’s to come.
On the other hand, emergency rate hikes of 0.75% should be a thing of the past, Hayes said.
“First market move is usually wrong, so we’ll see how it settles out in coming days,” he said.
Bill Adams, chief economist for Comerica Bank, further explained the Fed’s revised dot plot.
“The updated dot plot released today shows most Fed policymakers think it will be appropriate to raise interest rates another three quarters of a percent in 2023, and to have rates that high when next year ends,” Adams said.
The Fed got it wrong during the depths of the pandemic when it pointed to inflation as being transitory, he said. The central bank’s new assumptions about the inflation outlook create risk for the Fed to be “caught offsides” again, he added.
“The question is whether their pessimism about the inflation outlook will be borne out. Famous last words, but the inflation outlook has looked a lot less bad recently,” Adams said.
SPY Price Action: The SPY was down 0.49% at $400.02 Wednesday afternoon, according to Benzinga Pro.
Watch The FOMC Press Conference Here
Photo: courtesy of the Federal Reserve.
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Image and article originally from www.benzinga.com. Read the original article here.