2023-07-27 06:10:25 ET
The Federal Reserve pushed interest rates to a 22-year high on Wednesday, with another 25 bps move that'll bring its key rate to 5.25%-5.50%. It's not enough for the central bank to declare victory on historic inflation just yet, but it sure looks like markets are charting their next steps, with the CPI now down to 3% (from a high of over 9% seen last summer). Not much changed in the new FOMC statement, and while Fed Chair Jay Powell did continue to voice caution in the accompanying press conference, he did shift his tone especially with regards to the outlook for the U.S. economy.
Turning the corner: "The staff [economists from the central bank] now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession... My base case is that we will be able to achieve inflation moving back to our target without the kind of really significant downturn that results in high levels of job losses that we've seen in some past, many past instances... The Federal Funds Rate is at a restrictive level now, so if we see inflation coming down, credibly, sustainably, then we don't need to be at a restrictive level anymore... You'd stop raising [rates] long before you got to 2% inflation and you'd start cutting before you got to 2% inflation, too."
Following the news, the Dow Jones Industrial Average ( DJI ) notched its 13th consecutive advance, marking its biggest winning streak since the 1980s , and if it closes higher today, it would be its longest positive run since 1897. The latest U.S. GDP number for the second quarter will also be published this morning at 8:30 AM ET. Expectations are for growth to have slowed to a 1.5% annualized rate vs. growth of 2.0% in Q1, though that's a far cry from many economic forecasts that initially predicted a deep recession to already have taken hold by the middle of 2023.
SA commentary: "The Fed appears to be on track for a soft landing," wrote analyst Komal Sarwar in a new article covering the Invesco NASDAQ 100 ETF ( NASDAQ: QQQM ). "The current bull market is supported by strong economic fundamentals, corporate outlook, and investor sentiment, with sectors such as technology, consumer cyclical, and communications showing particularly strong results." The S&P 500 ( SP500 ) has "gained about 4% since earnings season began almost two weeks ago, with 75% of companies outperforming expectations, according to FactSet data."
More on the Fed meeting
- The Fed Expectedly Hikes, And The Market Dichotomy Changes
- Where Is The S&P 500 Headed After The Fed's Widely Expected Rate Hike?
For further details see:
Fed staff are no longer predicting a U.S. recession - Powell