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| Urgent: The Fed issues its decision, and the markets are moving strongly |
Urgent: The Fed issues its decision, and the markets are moving strongly
The US Federal Reserve announced its decision to raise interest rates by 75 basis points, to rise from 3.25% to 4.00%, and eyes remain to await the speech of US Federal Reserve President, Jerome Powell, at the press conference that will be held in 30 minutes from now.
Experts with a majority of more than 88%, according to the Fed’s interest rate tool, hoped that the Fed would raise interest rates by 75 basis points, but what is expected to be clarified by Jerome Powell is whether the Fed will continue to raise interest rates, or will change its monetary policy.
Glimpses of the US Market Committee's report
All Fed members chose to raise interest rates by 75 basis points at the November meeting, and the Fed hinted in its report that it may slow the pace of rate hikes in upcoming meetings.
Markets now
The US dollar is down 0.64% to record 110,610 against a basket of foreign currencies, while the US market indices are rising, with the Nasdaq Index rising by 0.31%, the Dow Jones by 0.89% and the S&P 500 by 0.67%.
As for gold, gold futures rose 0.95% to $1,664.40 an ounce.
Summary of the text of the commission's report
The Federal Reserve on Wednesday approved a fourth consecutive interest rate increase by three-quarters of a point and signaled a potential change in how it handles monetary policy to reduce inflation.
In a move markets had been anticipating for weeks, the central bank raised the short-term borrowing rate by 0.75 percentage points to its target range of 3.75%-4%, the highest level since January 2008.
The move continued the most aggressive pace of monetary tightening since the early 1980s, the last time inflation reached this high.
Along with the anticipation of a rate hike, the markets were also looking for language to suggest that this could be the last move of 0.75 pips or 75 bps.
The new statement hinted at this change in policy, saying that the Fed "will take into account the cumulative tightening of monetary policy, the delays with which monetary policy affects economic activity and inflation, and economic and financial developments."
Economists hope this is the much talk of "stepping down" in politics which could see a half-point increase in prices at the December meeting and then some small hikes in 2023.
This week's statement expanded on the previous language simply declaring that "continued increases in the target range will be appropriate."
The new language reads: "The Committee expects that continued increases in the target range will be appropriate in order to reach a monetary policy position that is sufficiently restrictive to return inflation to 2 percent over time."
Markets will be looking forward to Chairman Jerome Powell's press conference at 2:30pm. For more clarity on whether the Fed believes it can implement a less restrictive policy which would include a less dramatic level of rate hikes to achieve its inflation targets.
Alongside the revision in the statement, the FOMC again rated growth in spending and production as “modest” and noted that “job gains have been solid in recent months” while inflation is “high.” The statement also repeated the wording that the committee was "very concerned with inflation risks".
The price increase comes as recent inflation readings show that prices are still near 40-year highs. A historically tight job market, with roughly two opportunities for every unemployed worker, raises wages, a trend the Fed seeks to avoid as it restricts the money supply.
Concerns are growing that the Fed, in its effort to lower the cost of living, will also push the economy into recession. Powell said he still sees a path to a "soft landing" with no sharp deflation, but this year the US economy has shown virtually no growth even though the full impact of higher interest rates has yet to begin.
Meanwhile, the Fed's preferred inflation gauge showed the cost of living rose 6.2% in September from a year ago - 5.1% even excluding food and energy costs. Gross domestic product declined in both the first and second quarters, matching a common definition of recession, although it rebounded to 2.6% in the third quarter largely due to an unusual rise in exports. Meanwhile, home prices have plummeted as 30-year mortgage rates have climbed to over 7% in recent days.
On Wall Street, markets have been bouncing around waiting for the Federal Reserve to start rolling back soon as concerns grow about the long-term impact of higher interest rates.
The Dow Jones Industrial Average has gained more than 13% over the past month, due in part to an earnings season that hasn't been as bad as feared, but also amid growing hopes for the Fed's policy recalibration. Treasury yields have also fallen from their highest levels since the early days of the financial crisis, although they remain high. The most recent 10-year reference paper was about 4.04%.