Full Recap of the Federal Reserve's Rate Hike and Powell's Market-Boosting Comments

Elizabeth Frantz | Reuters

The Federal Reserve wrapped up its two-day meeting on Wednesday afternoon. Fed Chair Jerome Powell announced another 0.75 percentage point hike, as policy makers attempt to cool decades' high levels of inflation. Stocks rallied following Powell's comments.

Stocks close higher on Wednesday as Powell hints Fed could slow pace of rate hikes

The major averages surged as Federal Reserve Chair Jerome Powell spoke at his press conference on Wednesday and suggested the central bank could slow the pace of its hikes.

The S&P 500 added 2.6% to close at 4,023.61. The tech-heavy Nasdaq Composite gained nearly 4.1% to end at 12,032.42. The Dow Jones Industrial Average leapt 436.05 points, or 1.3%, to end at 32,197.59.

The 10-year Treasury yield ended the day little changed.

­­-Darla Mercado

'We've seen the very beginnings of a slight lessening of the tight labor market,' says Jerome Powell

-Brian Clark

Fed's awareness of economic impact of hikes is helping stocks, says BlackRock's Chaudhuri

Jerome Powell has signaled that the Fed is aware of the negative impact of its rate hikes on the economy, which is boosting stocks on Wednesday afternoon, according to a strategist at BlackRock.

"I think the reason this is providing some relief to the equity market is the Fed is acknowledging that there can be an impact on growth, to the economy, based on their policy," said Gargi Chaudhuri, head of BlackRock's iShares investment strategy, Americas. "They're recognizing there are two sides of this – there's a growth tradeoff to fight inflation. The recognition is something we heard today that we didn't hear before."

Powell said that the Fed could slow rate hikes in the months ahead and said that there could be some more financial tightening "in the pipeline" from the hikes that have already been made but maybe haven't taken full effect yet throughout the economy.

Chaudhuri said the market was reacting to several things, including the fact the Fed stuck to a 75 basis point hike and did not go more aggressively. She said it was a positive the statement reflected that the economy was slowing, and the fact that it will be data dependent going forward.

"They knew this was something the market would pay attention to, and they want to take sure we notice they acknowledge the slowing down of the economy" as a result of their policy, she said.

— Patti Domm, Jesse Pound

Fed Chair Jerome Powell says he doesn't think the U.S. is in a recession

Federal Reserve Chairman Jerome Powell said in his press conference today that "it doesn't make sense that the economy would be in recession," given monthly payroll growth has recently been averaging 450,000 jobs, and that employers added 2.7 million jobs in the first half.

"I do not think that the U.S. is currently in a recession," he said, "and the reason is there are just too many areas of the economy that are performing too well."

To be sure, "growth is slowing for reasons that we understand. Growth was exceptionally high last year, 5.5%. We would have expected growth to slow. There's also more slowing going on now," Powell added.

Read more here.

-Scott Schnipper, Carmen Reinicke

This is not yet a buying opportunity for investors, says analyst

For investors chomping at the bit and ready to buy risky assets, Oanda's senior market analyst Ed Moya said the time might not be right just yet.

"A clear greenlight to buy up risky assets won't happen until we see evidence inflation is coming down," he said.

"Inflation risks will remain elevated as energy shortages are likely, supply chain issues won't ease given a weakening global outlook, and as pandemic-related issues remain troubling," Moya added.

— Pippa Stevens

The rise in initial unemployment claims may actually be seasonal adjustments, says Fed Chair Powell

-Brian Clark

Preliminary GDP numbers should be taken with a 'grain of salt,' Powell says

Preliminary gross domestic product numbers should generally be taken with a "grain of salt," Fed Chair Jerome Powell said.

"It's very hard to cumulate U.S. GDP, it's a large economy and a lot of work and judgment goes into that," Powell said. "You tend to take first GDP reports I think with a grain of salt, but of course it's something we'll be looking at."

He noted that GDP numbers are often "revised pretty significantly."

Preliminary numbers for second-quarter U.S. economic growth are slated for release Thursday morning.

Samantha Subin

Fed statement seems to be the first since January 2020 to not mention coronavirus

Wednesday's Federal Open Market Committee policy statement for July 2022 appears to be the first one since January 2020 that didn't mention either "coronavirus" or "Covid."

The first time the Fed referenced the looming pandemic was in the statement accompanying a March 3, 2020 meeting.

-Scott Schnipper

Big Tech stocks jump as market extends gains

Stocks have extended their gains since the start of Federal Reserve Chair Jerome Powell's press conference, including some big moves by blue-chip stocks.

In the tech sector, Microsoft has jumped 6.4%, while shares of Google-parent Alphabet are up nearly 8%. Amazon surged more than 4%, while Apple has added 2.8%.

Bank stocks are also performing well. Shares of JPMorgan, Goldman Sachs and Citigroup are all up more than 1%.

— Jesse Pound

We think we need a period of growth below potential in order to create some slack, says Fed Chair Jay Powell

-Brian Clark

Rate increases are accomplishing their goal, Harris' Cox says

The rate hikes from the Federal Reserve are accomplishing their goal, said Jamie Cox, a managing partner at Harris Financial Group.

"The rate increases are having their intended effect," he said. "We are just not sure what the price is going to be. The main effect is that markets are confident that the Fed won't allow inflation to become anchored among consumers and businesses, and that's maybe the first time this year that this has happened."

— Samantha Subin

Powell says another 'unusually large' increase could be appropriate, will depend on data

Wednesday's rate hike is the second consecutive 0.75 percentage point jump from the Fed, and more large moves could be on the horizon.

"While another unusually large increase could be appropriate at our next meeting that is a decision that will depend on the data we get between now and then," Fed Chair Jerome Powell said.

The central bank will continue to make decisions meeting by meeting and do its best to communicate the thinking behind further moves, Powell said.

Powell also acknowledged that the pace of rate hikes could slow at some point, depending on the data the Fed watches.

"As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation," he said.

There's some evidence we're seeing the slowdown in economic activity we need, says Jerome Powell

-Brian Clark

Fed is looking for 'compelling evidence' that inflation has subsided, Powell says

The Federal Reserve is on the hunt for signs that inflation is easing, according to Fed Reserve Chair Jerome Powell.

"Over coming months we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2%," Powell said.

He added that the Fed expects likely increases to the target range for the fed funds rate going forward, however, that pace is dependent on future data and the economy.

— Samantha Subin

Powell says inflation is 'much too high'

Federal Reserve Chair Jerome Powell said in his opening remarks that the state of the economy has not changed too much over the past month.

"From the standpoint of our Congressional mandate to support maximum employment and price stability, the current picture is plain to see: The labor market is extremely tight, and inflation is much too high," Powell said.

—Jesse Pound

Rate hikes will need to continue to combat inflation, Shah says

The current interest rate hiking cycle is swiftly proving to be one of the Fed's most aggressive in recent decades, Seema Shah, chief global strategist at Principal Global Investors said. They'll need to continue to tamp down inflation, she said.

 "Combatting four-decade high inflation will take a sustained show of strength from the Fed, rendering a soft landing an almost impossible pipe dream," said Shah.

Still, the central bank's next move may not be as large as the hike Wednesday.

"From here, it is possible that the Fed slows its tightening pace, reassured by the likely peaking of inflation and pullback in inflation expectations as oil prices have fallen," Shah said. "However, with the labor market still a picture of strength, wage growth still uncomfortably high and core inflation set to decline at a glacially slow pace, the Fed certainly cannot stop tightening, nor can it downshift gears too much."

She expects that rates will rise above 4% next year before a recession hits, potentially opening the door for rate cuts in late 2023.

— Carmen Reinicke

Bleakley's Peter Boockvar calls Fed statement a 'big yawner'

Bleakley Advisory Group's Peter Boockvar called the latest statement from the Federal Open Market Committee a "big yawner" given the minimal changes from the June meeting.

"The FOMC statement was a big yawner with only modest changes to it relative to the June meeting," he wrote. "After saying in June that "overall economic activity appears to have picked up after edging down in the first quarter," they certainly backtracked on that as they should have."

According to Boockvar, that puts added pressure on Fed Chair Jerome Powell's press conference later this afternoon, which should steer expectations going forward.

"While he has no reason yet to commit to anything, I'm sure that Powell will let us know that he remains vigilant in his battle with inflation at the same time 'hoping' that it won't involve a recession, even though it's basically too late for that," he said.

— Samantha Subin

Fed's statement says parts of the economy have softened

The most notable change in this meeting's Fed policy statement came right at the top.

"Recent indicators of spending and production have softened," the statement began. "Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low."

After the June meeting, the Fed had said economic activity "appears to have picked up after edging down in the first quarter."

Check out the full statement and its changes here.

— Jesse Pound

Stocks maintain gains after Fed rate hike

The three major averages held onto their gains after the Federal Reserve said it would raise interest rates by 0.75 percentage point.

The S&P 500 was up about 1.3% shortly after the central bank announced its move. The Nasdaq Composite gained roughly 2.4%, and the Dow Jones Industrial Average added about 70 points.

Indeed, this year thus far stocks have ended the day higher after the Fed raises interest rates.

The 10-year Treasury yield remained lower even after the rate hike.

-Darla Mercado

Federal Reserve hikes interest rates by 0.75 percentage point

The Federal Reserve raised interest rates by 0.75 percentage point on Wednesday. It's the second consecutive rate hike of that magnitude.

The central bank's move raises the benchmark overnight borrowing rate up to a range of 2.25% to 2.5%.

The rate hike comes as the Fed attempts to cool down inflation while avoiding a recession.

Read more here.

-Darla Mercado, Jeff Cox

Bill Ackman asks where Powell’s mojo has gone in his fight against inflation

Hedge fund manager Bill Ackman took to Twitter again Wednesday before the Federal Reserve's policy decision, indicating that Chair Jerome Powell has lost his mojo in fighting soaring inflation compared to his role in rescuing the economy from the Covid crisis.

The Pershing Square CEO said he doesn't understand why Powell is reluctant to say that the Fed will stop inflation by hiking rates and keeping them higher for longer until ample evidence of easing price pressures.

— Yun Li

Why a hawkish Fed could spook the market

Stocks and bond prices have rallied in the weeks leading up to Wednesday's expected rate hike, which could put markets at risk for a backslide if the Federal Reserve holds course.

Signs of an economic slowdown have led to speculation on Wall Street that the central bank may soon take its foot off the gas of its rate hikes in an attempt to avoid a recession. However, Fed Chair Jerome Powell took an aggressive stance against inflation at the last meeting, and he could do so again on Wednesday.

"I think the Fed will be more hawkish than dovish. I think that people in the market are looking for them to pull back and slow down the hawkish nature of their general commentary, and I think this meeting they're going to be disappointed," said Eric Merlis, managing director, global markets at Citizens Financial.

In fact, some traders have started to price in rate cuts next year, anticipating a pivot from the Fed. The CME's FedWatch tool shows a 100% chance of the Fed funds rate being at 3% or higher by December, before declining to roughly a 75% chance of that in July 2023.

"I understand why it's being priced in but, from a pure trading standpoint, you could see a big piece of that reverse today after the press conference," Merlis said.

— Jesse Pound

BlackRock’s Rick Rieder expects the Fed to raise rates three more times

BlackRock's Rick Rieder said he anticipates the Federal Reserve will raise rates by 0.75 percentage point Wednesday and two more rate hikes may be in the cards before the central bank stops.

The central bank is widely expected to announce a 75 basis point rate hike on Wednesday afternoon. (1 basis point equals 0.01%)

"I think the implications will be that you go to 50 in September, and then I quite frankly think markets have gotten to a place, which I think is right, that they're going to maybe do another 25 and I think that's it," said Rieder, chief investment officer of global fixed income at BlackRock

He added that what Fed Chair Jerome Powell says at his press briefing on Wednesday afternoon will be key.

"The thing is watch what they do, not what they say," Rieder said. "I've got to watch more what they say than what they do. Meaning, I don't think the 75 or the statement are going to be that interesting. And I think they have to tone down the economic section of the statement. But I think what he says will be more important than the 75 in that the data is not ambiguous to the slowdown."

Read more here.

­-Darla Mercado, Patti Domm

Atlanta Fed’s GDPNow forecasts second-quarter GDP will fall by 1.2%

The Atlanta Federal Reserve updated its real-time reading of economic growth on Wednesday, calling for a decline of 1.2% for the second quarter.

Previously, the Atlanta Fed's GDPNow tool forecasted that gross domestic product would decline by 1.6%.

The Atlanta Fed cited recent data releases from the Census Bureau and the National Association of Realtors as factors behind its decision. Indeed, pending home sales slid 20% in June on a year-over-year basis, according to the latest data from the National Association of Realtors. Meanwhile, new orders for manufactured durable goods in June rose by 1.9% to $272.6 billion, the Census Bureau found.

Second-quarter GDP data is due on Thursday. Since the first quarter saw GDP decline by 1.6%, economists and investors are wondering whether this next release will reflect two consecutive quarters of negative GDP readings.

Two back-to-back negative GDP quarters don't constitute a recession, however. The National Bureau of Economic Research makes that determination and uses multiple factors to do so.

-Darla Mercado

The Federal Reserve is anticipated to announce an interest rate hike of 0.75 percentage point

The Federal Reserve is expected to raise interest rates by 0.75 percentage point – its second hike of that magnitude since June and a first in the "modern era" of Fed policy.

The anticipated rate hike comes at a pivotal time as policymakers attempt to slow inflation and provide the economy with a soft landing. The consumer price index for June leapt 9.1% from a year ago, and consumer spending on a dollar level has been solid. Meanwhile, jobless claims have ticked higher, which suggests the labor market is starting to cool.

Investors are paying especially close attention to the Fed's decision Wednesday because second-quarter gross domestic product numbers are out on Thursday. GDP declined by 1.6% during the first quarter. Two consecutive quarters of negative economic growth could make the Fed's path on rate hikes even more precarious.

-Darla Mercado, Jeff Cox

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