FOMC Meeting 2023: Fed hikes policy rates by 25bps; ongoing increase in target range appropriate to achieve 2% inflation
The 12-member committee toned down pace of interest rate hike, a glimpse of which was seen in the December Montary Policy where the US Central Bank had raised rates by 50bps to bring the range at 4.25-4.50 per cent, in line with the streets expectations
FOMC Meeting 2023: US Federal Reserve on Wednesday raised interest rates by 25bps taking the range to 4.50-4.75 per cent. The decision was taken during the Federal Open Market Committee (FOMC) meeting which began on Tuesday, 31 January 2023. The meeting concluded on 1 February and was followed by a press conference by Fed Chair Jerome Powell.
US markets were trading mix, albeit with relative stability around this time. Nasdaq Composite was up 1.50 per cent while S&P 500 was higher by 0.77 per cent, Dow 30 recovered from early losses and was trading flat at 34,081.20.
The 12-member committee toned down pace of interest rate hike, a glimpse of which was seen in the December Monetary Policy where the US Central Bank had raised rates by 50bps to bring the range at 4.25-4.50 per cent, in line with the street's expectations.
Powell had then indicated that the Fed could consider raising interest rates by 75bps through 2023.
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FOMC Policy Outcome - FULL TEXT
"Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated. Russia’s war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent."
"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time."
"In determining the extent 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."
"In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgagebacked securities, as described in its previously announced plans."
"The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that (more) -2- could impede the attainment of the Committee’s goals."
"The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."
US Fed: I dont see the commitee cutting rates unless there are clear indications of inflation coming down in sustained way
US Fed on Stagflation situation: Dont want to go to hypotheticals
US Fed: We are missing on inflation and missing by a lot. The focus is clearly on bringing the inflation down
US Fed: We don't see participation moving up despite very tight labour markets, higher wages
US Fed: We are highly committed to brinng down inflation and "I" believe we could do so
US Fed: We will keep are inflation target at 2 per cent
Wall Street Snapshot
Source: Comex US Fed: Labour market is significantly strong;
US Fed: Higher rates to increase unemployment, lower growth resulting reduction in inflation
US Fed: FOMC participlants believe that inflation trajectory is on the upside
US Fed: we have raised 425 bps this year; next hikes will depend on data, financial data
US Fed: 50bps interest rate hike in 2023
US Fed: We believe that there is still some time before inflation comes down
US Fed: Services inflation is unlikley to come down soon
US Fed: We have got growth at a modest level
US Fed: Financial Conditions have tightened over the course of 1 year; Our focus is not based on short term moves
US Fed: Price stability remains a priority; we will do any thing to achieve price stability, maximum employment goal
US Fed PC LIVE
US Fed: Inflation has cooled down; but that is not gound for complacency
US Fed: Policy guided by maximum employment
US Fed: Inflation impacts purchasing power of the people
US Fed: Financial conditions have tightened over the course of 1 year
US FED Char Jerome Powell: We understand the hardships of the people
US FED Char Jerome Powell: working to reduce the size of balance sheet
US FED Char Jerome Powell: US Economy has signifcant lowered
US FED Char Jerome Powell: Interest rate hike 25 per cent
US FED Char Jerome Powell: Job market remains elevated with wages remaing elevated
US FED Char Jerome Powell: Labour force participation little changed
Recent economic data presents mixed picture
-- A series of economic data shows signs of sluggishness in the US economy indicating the Fed fight against soaring inflation is bearing fruit but at the cost of economic slowdown. If we look at recent economic data from the US, activities in manufacturing and services sector contracted. Moreover, US CPI data eased for sixth consecutive month and came down to 6.8% from a four decade high of 9.1%. Core PCE Price index, Fed preferred inflation gauge, also indicated ebbing price pressure. Along with it, housing markets have started crumbling due to higher rates
-- However, strong labour market is not a good sign in combat against inflation but the easing of wage growth is a blessing, which should be a major variable, going forward
-- Recent US GDP data was above market expectations albeit down slightly compared to previous quarters. However, the market reaction suggests that the current state of the economy is strong and there should not be a hard landing due to increased rate hikes
Recap of US Federal Reserve monetary policy: December 2022
-- The US Federal Reserve raised interest rates by 50 bps to a range between 4.25% and 4.50% and signalled that the magnitude of the hikes may be smaller but may ultimately move to higher levels than anticipated
-- FOMC also said it would continue with its balance sheet reduction as announced in May 2022
-- US Federal Reserve Chair Jerome Powell had said no officials had projected rate cuts next year and they were unlikely to consider lowering interest rates until policy makers are confident inflation is moving down to the Fed’s 2% goal in a sustained fashion
Inputs from ICICI Securities
SGX Nifty Intraday Chart
Source: Comex US Markets LIVE Updates
At the time of filing of the story, Dow 30 was trading at 33,809, down by 277 points or 0.81 per cent while S&P 500 was trading at 4,060.98, lower by 16.19 points or 0.40 per cent. Nasdaq Composite was trading at 11,552.90, down by 31.64 points or 0.27 per cent.
Commodity Market Snapshot - India and Comex
Source: MCX Source: Comex
Wall Street Action
Ahead of the Fed meeting outcome, Dow futures were trading at 33,912.50, down by 173.50 points or 0.51 per cent while Singapore listed SGX Nifty futures, an early indicator of movement in Nifty was trading positive. It was trading at 17,731.5, higher by 31.5 points or 0.18 per cent.
Frontline indices on Wall Street - Dow 30, S&P 500 and Nasdaq Composite were yet to open at the time of filing this report. All three indices ended with gains on Tuesday.
Source: Comex Build up to Fed Press Conference
Hours before the Fed moneratry policy announcements are made, the anticipation is building up on two issues -- one is by how much will be interest rate hike take place and at what point we would see the Fed pivot.
The popular expectation this time is a 25bps rate hike bringing the benchmark rate to a range of 4.5% to 4.75%.
Inflation is cooling, and parts of the economy appear to be weakening. But Chair Jerome Powell is likely Wednesday to underscore that the Federal Reserve's primary focus remains the need to fight surging prices with still-higher interest rates, a PTI report said quoting AP.
With financial markets anticipating that the Fed will stop raising rates soon and possibly even cut them later this year, analysts say Powell will need to push back against such optimism. If financial markets expect lower rates than what the Fed plans to deliver, the central bank's already treacherous task can become even harder.
MSCI world index up 0.2% ahead of Fed policy decision; all eyes on Jerome Powell
The MSCI All-World index was last up 0.2 per cent, having ended January seven per cent higher, thanks in large part to investors growing more optimistic about the outlook for global inflation and interest rates.
The Fed will announce its rate decision at 1900 GMT (12:30 am Thursday in India), followed by a news conference with the US central bank's Chairman Jerome Powell.
European markets hold on to day's gains led by industrial stocks
European markets firmed up as industrial stocks gained as investors awaited the outcome of the FOMC's first policy meeting of 2023. The pan-European Stoxx 600 was up 0.3 per cent in late afternoon deals, having clocked its best January performance since 2015 with a gain of 6.7 per cent.
Hopes of better-than-expected corporate earnings and signs of economic resilience were driving the markets.
Here's what benchmarks of some of the main markets in the region looked like:
- FTSE 100: up 0.2 per cent
- France's CAC: up 0.2 per cent
- Germany's DAX: up 0.5 per cent
A roller coaster ride for Indian markets on the Budget 2023 Day
Closing Bell: A roller coaster ride for the stock markets on the Budget 2023 day. Frontline indices S&P BSE Sensex traded in a 2000 point range while broader market NSE Nifty50 in a 620 point range. While Sensex settled at 59,708.08, up 158.18 points or 0.27 per cent, Nifty50 closed at 17,616.30, down by 45.85 points 0.26 per cent. Banking gauge Nifty Bank fell by 142 points or 0.35 per cent at 40,513. India VIX, a measure of volatility was down by 0.56 per cent to 16.78.
In the 50-stock index, 23 stocks advanced. The top gainers were ICICI Bank, JW Steel,
ITC, Tata Steel and Britannia Industries while the top losers were Adani Enterprises, Adani Ports, HDFC Life, SBI Life and Bajaj Finserv. The rout was engineered by heavy selling in the Adani Group stocks. Adani Enterprises shares fell over 26 per cent while Adani Ports shares fell over 17 per cent.
Wall Street | Dow Jones, S&P 500, Nasdaq firm in the green in early deals
The three main Wall Street indices began the day well in the green, mirroring gains across their European and Asian peers, amid optimism about a slower pace of hikes in benchmark interest rates.
Here's how the three gauges fared few minutes into the opening bell:
- Dow Jones Industrial Average: up 1.1 per cent
- S&P 500: up 1.5 per cent
- Nasdaq Composite: up 1.7 per cent
Economists Vs Economists
Some economists think the Fed doesn't need to push rates much higher and that doing so would heighten the risk of a deep recession.
Economists at Morgan Stanley suggest that as inflation continues to ease in the coming months, Wednesday's rate hike will end up being the last one this year.
The Fed could signal that a pause in rate hikes is on the horizon by changing some language in the statement it issues after each policy meeting.
Since March, the statement has said that ongoing increases in the (interest rate) target range will be appropriate.
Some economists expect officials to slightly alter that part of the statement to make it a less specific commitment and give the Fed more flexibility.
Inputs from PTI
Price Stability Vs Growth - Deilemma
After being caught off guard Powell had initially characterised high inflation as only a temporary phenomenon officials developed a clear view of what was needed:
An aggressive series of rate hikes to slow borrowing and spending, cool growth and curb high inflation.
Now, though, inflation has weakened since the fall. As a result, the risks that the Fed's rate hikes could send the economy into a painful recession, with waves of job losses, are rising.
Over the past year, with businesses offering healthy raises to try to attract and keep enough workers, Powell has expressed concern that hefty pay growth in the labour-intensive service sector would keep inflation too high. Businesses typically pass their increased labour costs on to their customers by charging higher prices, thereby perpetuating inflation pressures.
Inflation Situation
Consumer prices, by the Fed's preferred measure, have risen at just a 2.9% annual rate in the past three months.
Yet Fed officials have said they would need to see further evidence that inflation was declining closer to its 2% target before they would consider suspending their rate hikes.
The latest sign that inflation is cooling came Tuesday in a report that showed wage growth slowed in the final three months of last year for a third straight quarter.
That report could reassure Fed officials that rising paychecks are now less likely to fuel inflation.
Inputs from PTI
Fed Rate Hike Impact
The policymakers are set to raise their benchmark rate by a quarter-point to a range of 4.5% to 4.75%, its highest level in about 15 years.
The move could further increase borrowing rates for consumers as well as companies, ranging from mortgages to auto and business loans.
In some ways, the Fed's challenge is trickier than it was last year, when inflation accelerated much faster than officials had expected.
Inputs from PTI
FOMC Meeting 2023: Expectations from Chair Jerome Powell
Inflation is cooling, and parts of the economy appear to be weakening. But Chair Jerome Powell is likely Wednesday to underscore that the Federal Reserve's primary focus remains the need to fight surging prices with still-higher interest rates.
With financial markets anticipating that the Fed will stop raising rates soon and possibly even cut them later this year, analysts say Powell will need to push back against such optimism.
If financial markets expect lower rates than what the Fed plans to deliver, the central bank's already treacherous task can become even harder.
Powell's tough message will likely emerge at a news conference after the Fed's 19-member policy committee announces its latest action.
US Markets Upbeat ahead of Fed Meeting Outcome
Wall Street ended on high on the eve of the Fed meeting outcome day. All three benchmark indices - Dow 30, S&P 500 and Nasdaq Composite ended in the green gaining over 1 per cent.
Stock Market Today LIVE Updates: Indian equity benchmarks Sensex and Nifty50 held on to the green in morning deals on Wednesday, February 1 — the day Finance Minister Nirmala Sitharaman presents Union Budget in Parliament. The finance minister's Budget speech will be tracked closely for key announcements on areas such as railway, defence, education, social welfare, GDP, fiscal deficit, inflation, disinvestment, income tax and COVID. (Follow Zeebiz.com's Budget blog here)
Commodities Live - Expert take on Gold, Crude Oil ahead of Fed Meeting
Ravindra V.Rao, CMT, EPAT, VP-Head Commodity
Research, Kotak Securities Ltd.Bullion
“In yesterday’s session, COMEX Gold initially fell to as low as $1915/oz but sharply recovered later in the day to end the session with a mild gain of 0.31%.US Dollar and 10-year treasury yields both traded lower supporting golds recovery from lower levels. US data prints continued to disappoint as indicated by the Chicago PMI and consumer confidence. Focus will now shift to ISM manufacturing PMI scheduled to be released today. Expectation is for a further contraction from Dec print of 48.4. Additionally, gold prices might trade in a range ahead of the FOMC meeting conclusion, as investors might stay risk-averse ahead of Powell's press conference. On the price front COMEX Gold April contract has formed a bearish engulf on daily charts which will confirm only on a close below $1935/oz. RSI is also heading lower after forming a
negative divergence indicating fading bullish momentum. Immediately, below $1935 support is pegged near $1918/oz followed by $1887/oz which will be on bears radar if they succeed in closing the price below $1935/oz.”Crude oil
“NYMEX WTI Crude oil recovered sharply after falling to as low as $76.55/bbl on Tuesday. It ended the session with a gain of around 1.25% and closed around $79/bbl. Crude has been trading lower as Russian flows continued and threat of further rate hikes by central bank has raised worries on demand amid slowing economy. However, weaker dollar and falling US bond yields has supported the prices at lower levels. On the inventories front API reported another huge build in inventories of around 6.3 million barrels in the week to January 27, against expectations for a draw of 1 million barrels. All eyes will be now on the official EIA inventory due to be released today. A similar or a higher build in EIA print might pull crude prices lower. Also, focus will be on today’s planned virtual meeting of OPEC+ and the FOMC meet outcome that might provide direction to crude price.”
(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)
Closing Bell: Indian frontline indices traded in a narrow range on Tuesday ahead of the Budget 2023 and Federal Reserve’s Federal Open Market Committee (FOMC) meeting which begins today. While S&P BSE Sensex traded in a 680 points range, the broader market NSE Nifty50 traded in 200 points range. Sensex ended at 59,549.90, up 50 points or 0.08 per cent while Nifty50 settled at 13.20 points or 0.07 per cent higher at 17,662.15. Banking gauge Nifty Bank finished at 40,655.05, up 267.60 points or 0.66 per cent from the Monday closing.
Source: Reuters It was second consecutive positive closing, today. India VIX, a measure of volatility in Nifty was 16.88, down 4.71 per cent. The rally in index was supported by ICICI Bank, ITC and State Bank of India (SBI).
US Job Markets and Layoffs
The reality is that earnings are proving to be even worse than feared based on the data, especially as it relates to margins, a Morgan Stanley report said.
Later this week, the U.S. Government will also give its latest monthly update on the job market. Hiring has remained remarkably resilient across the broad economy, even as housing and other corners weaken sharply under the weight of all the Fed's rate hikes from last year.
Some big tech companies have announced high-profile layoffs after acknowledging they misread their boom coming out of the pandemic. But job cuts may be starting to spread to other areas of the economy. Hasbro and 3M last week announced layoffs.
All told, economists expect Friday's report to show that U.S. Employers added 187,500 more jobs than they cut during January. That would be a slowdown from December's hiring of 223,000.
The yield on the 10-year Treasury rose to 3.53 per cent from 3.51 percent late Friday. The two-year yield, which tends to move more on expectations of Fed actions, rose to 4.27 per cent from 4.20 per cent.
Wall Street Heavy Weights to announce their December Quarter results
Beyond interest rates, more than 100 companies in the S&P 500 are scheduled this week to report how much profit they made in the last three months of 2022. Among them are tech heavyweights Apple, Amazon, and Google's parent company. Because these companies are three of the four biggest on Wall Street by market value, their stock movements carry much more sway on the S&P 500 than others.
The only other stock that rivals them in size - Microsoft, shook Wall Street last week when it gave forecasts for upcoming results that raised worries about a slowdown in corporate spending on tech.
Companies generally look to be on track to report slightly weaker profit for the end of 2022 than expected, according to a BofA Global Research report. That's an indication that the strong January enjoyed by the S&P 500 so far is more about improving sentiment on Wall Street than about better fundamentals, strategist Savita Subramanian wrote.
Economic Survey 2023: Interest rate hike by US Fed to trigger further weakness in Rupee versus Dollar
Challenge to rupee depreciation persists with the likelihood of further interest rate hikes by the US Federal Reserve, Economic Survey 2022-23 tabled by Finance Minister Nirmala Sitharaman said.
The Economic Survey also noted that INR could be under further duress if India’s Current Account Deficit (CAD) continues to widen as global commodity prices remain elevated and economic growth momentum stays strong.
FOMC Meeting 2023 - ICICI Direct's View
US Fed likely to reduce magnitude of rate hike: February 2023
• We expect the Fed to dial back the pace of hike and increase rates by 25 bps to a range between 4.50% and 4.75% as recent economic data from the US signals that the economy is feeling the heat of a rate hike and lagged effect of Fed aggressive rate hike are beginning to take their toll. Even the CME fed watch tool indicates more than 99% probability of 25 bps rate hike in the February meeting
• Meanwhile, markets will try to find answers to how much rate hike is left and are policymakers convinced with moderating inflation.
(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)
US Fed FOMC Meeting
-- Later this week, the U.S. Government will also give its latest monthly update on the job market. Hiring has remained remarkably resilient across the broad economy, even as housing and other corners weaken sharply under the weight of all the Fed's rate hikes from last year.
-- Some big tech companies have announced high-profile layoffs after acknowledging they misread their boom coming out of the pandemic. But job cuts may be starting to spread to other areas of the economy. Hasbro and 3M last week announced layoffs.
-- All told, economists expect Friday's report to show that U.S. Employers added 187,500 more jobs than they cut during January. That would be a slowdown from December's hiring of 223,000.
-- The yield on the 10-year Treasury rose to 3.53% from 3.51% late Friday. The two-year yield, which tends to move more on expectations of Fed actions, rose to 4.27% from 4.20%.
-- In stock markets overseas, reports that holiday travel during last week's Lunar New Year festivities was nearly back to normal raised expectations that China's economy may regain momentum faster than anticipated after it relaxed pandemic restrictions late last year.
Expert Take
-- Strategists at Morgan Stanley led by Michael Wilson warn tougher times may be ahead.
-- The reality is that earnings are proving to be even worse than feared based on the data, especially as it relates to margins, they wrote in a report.
-- Secondly, investors seem to have forgotten the cardinal rule of Don't Fight the Fed'. Perhaps this week will serve as a reminder.
Inputs from PTI
Europe, UK Central Banks to announce rate hikes too
Central banks for Europe and for the United Kingdom are also set to announce their latest increases for rates this week.
Beyond interest rates, more than 100 companies in the S&P 500 are scheduled this week to report how much profit they made in the last three months of 2022. Among them are tech heavyweights Apple, Amazon, and Google's parent company. Because these companies are three of the four biggest on Wall Street by market value, their stock movements carry much more sway on the S&P 500 than others.
Source: Reuters The only other stock that rivals them in size, Microsoft, shook Wall Street last week when it gave forecasts for upcoming results that raised worries about a slowdown in corporate spending on tech.
Companies generally look to be on track to report slightly weaker profit for the end of 2022 than expected, according to a BofA Global Research report. That's an indication that the strong January enjoyed by the S&P 500 so far is more about improving sentiment on Wall Street than about better fundamentals, strategist Savita Subramanian wrote.
FOMC Meeting 2023 - The BIG Question
The big question is whether Fed Chair Jerome Powell will give what markets want to hear? The street wants to hear if we Fed is reaching a pivot and that rate hikes will end soon. As the intterest rates remain elevated, it will be seen if the Fed would consider cutting rates by the end of this year.
Powell in his earlier monetary policy press confrences has said it unequivocally that price stability is his top priority even if the Central Bank has to let growth slip a bit. It would not mind even if a modest recession hits. Central banks for Europe and for the United Kingdom are also set to announce their latest increases for rates this week.
Wall Street Movement: What is leading to correction?
Markets have been veering recently on worries that the economy and corporate profits may be set for a steep drop-off, along with competing hopes that cooling inflation will get the Federal Reserve to take it easier on interest rates.
Pic Source: Reuters The central bank's next decision on rates is coming Wednesday, and most investors expect it to announce an increase of just 0.25 percentage points. That would be the smallest increase in nearly a year, following a spate of hikes of 0.75 points and then a 0.50-point increase, and it would mean less added pressure on the economy.
Higher rates intentionally slow the economy by making it more expensive to buy a house or anything else on credit, while also dragging down on prices for investments.
Inputs from PTI
US Markets nervous ahead of the Fed FOMC meeting which begins today
Nervousness on Wall Street was palpable on Monday as frontline indices slipped significantly ahead of the US Federal Reserve's Federal Open Market Committee (FOMC) meeting. While Dow 30 settled at 33,717.10, down by 260.99 points or 0.77 per cent, S&P 500 closed at 4,017.77, lower by 52.79 points or 1.30 per cent. Nasdaq Composite finished at 11,393.80, lower by 227.90 1.96 per cent.
Source: Comex Dow futures were trading at 17,692, down 13 or 0.07 per cent.
US Markets on Monday
US markets were trading in the red ahead of the crucial US Federal Reserve. All three frontline indices on Wall Street were trading negative -- while Dow 30 was trading down 0.23 per cent, S&P 500 were lower by 0.75 per cent. Nasdaq Composite was the biggest loser and fell by 1.31 per cent.
Source: Comex
Stock Market Action - Sensex, Nifty end in green, break 2-day losing streak
Closing Bell: Indian frontline indices S&P BSE Sensex and NSE Nifty50 not just ended their 2-day losing streak but also rebounded from 3 month lows on on Monday. While the Sensex closed at 59,500.41, up 169.51 points or 0.29 per cent, the broader market Nifty50 closed at 17,648.95, higher by 44.60 points or 0.25 per cent. The banking gauge Nifty Bank also managed a green closing at 40,387.45 finishing 42.15 points or 0.1 per cent higher.
In the 50-stock Nifty50, 29 stocks advanced with Bajaj Finance, Adani Enterprises, UltraTech Cement Company, Bajaj Finserv and Asian Paints ending as top gainers. The top losers were Power Grid, Bajaj Auto, IndusInd Bank, Larsen & Toubro and JSW Steel.
Good Evening! This is Shivendra Kumar and I will bring all the LIVE updates from the Federal Reserve's FOMC meeting Press Conference scheduled on Wednesday, 1 February, 2023. Catch all the action here!
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