What does Wall Street think of the July Fed rate meeting?

Author: BitpushNews Mary Liu

On Wednesday afternoon ET, the Federal Reserve approved a 25 basis point rate hike, its 11th hike in 17 months, pushing the federal benchmark's borrowing costs to their highest level in 22 years.

Investors are watching for signs that this could be the last rate hike of the series, with financial markets already pricing in no more rate hikes this year despite policymakers signaling two more hikes this year at their June meeting sex.

The S&P 500 closed little changed on Wednesday, while the tech-heavy Nasdaq was slightly lower. The Dow posted its 13th straight gain, rising 82 points, or 0.2%, its longest winning streak since January 1987. BTC is up 0.8% on a 24-hour basis to trade at $29,470. Ethereum edged up 0.5%.

Additional Policy Crunch

A recent Reuters poll of 106 economists showed a majority expect today's rate hike to be the last of the cycle, but Fed forecasts suggest otherwise.

Matt Kunke, research analyst at cryptocurrency trading firm and liquidity provider GSR, noted that the central bank’s Summary of Economic Projections (SEP) for June showed that the median forecast by Fed officials was for two more rate hikes this year. "The market has not fully bought in to this view and continues to imply that one rate hike (around 65%) is more likely than two (around 27%)," Kunke said.

Powell told a news conference that the central bank has not made any decisions on future rate hikes, but he made clear that the fight against inflation is not over yet.

Year-on-year inflation was 3% in June, down sharply from a peak of 9.1% in June 2022, according to data released by the U.S. Labor Department. Still, the Fed's preferred measure of "core" inflation - which excludes volatile food and energy costs - was still up 4.6 percent in May from a year earlier.

"The Committee will consider the cumulative tightening of monetary policy, the lag in monetary policy's impact on economic activity and inflation, and economic and financial developments," the Fed's post-meeting statement said.

Some Fed officials, including Governing Council member Christopher Waller and Dallas Fed President Lorie Logan, said they believed the cumulative effect of previous rate hikes had been baked into the economy. With inflation still running above the Fed's target, they believe further rate hikes may be needed to further ease price pressures.

Fed Chair Jerome Powell reiterated this point at a news conference, saying further rate hikes could come in September if the data warrants it. "We may choose to leave it unchanged at that meeting, but as I said, we will carefully evaluate meeting by meeting," he said.

Rate cuts are unlikely this year

Powell also mentioned that inflation has slowed since the middle of last year, but "there is still a long way to go" to reach the Fed's 2% target, and he believes the economy will achieve a soft landing, with interest rate cuts unlikely this year.

Powell noted that some FOMC participants had factored in next year's rate cuts into their economic forecasts, but said, "That's a judgment call we have to make about our expectations that inflation will actually fall to our 2% target." How much confidence there is."

Powell remains confident the Fed can reduce inflation without causing a sharp downturn in the economy, although he said it was "a long way from being sure."

On the subject of rate cuts next year, Powell said it would be a "judgement" they would make based on their level of "confidence."

How do professionals interpret it?

Gurpreet Gill, global fixed-income macro strategist at Goldman Sachs Asset Management, said Wednesday that any fresh signs of inflation could mean the Fed's rate hike path will be extended. Given the uncertainty over the end of this rate hike cycle, Gurpreet Gill said that if more progress is made in reducing inflation, it will limit the rise in US Treasury yields. The 10-year Treasury yield could even fall if inflation continues to cool. However, a strong labor market and economy will moderate the potential decline in yields.

Gurpreet Gill said: "Today's Fed meeting is one of the most certain and uncertain meetings in this cycle. The 0.25% rate hike has been fully priced in and widely expected by forecasters and investors. The last hike to mark the current tightening campaign remains divided."

Goldman Sachs said in a note to clients that the Fed's statement does not signal a slowdown in the pace of future rate hikes, but the bank expects a hike in September.

"The message to the market is that it's not getting any traction. There's always the fear of a big surprise," said Angelo Kourfafas, investment strategist at Edward Jones.

Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, said Powell's message was clearly that the Fed would wait and see economic data to make a new decision. "I don't think the Fed will stop until they see wage inflation coming down."

“Where the market is mispricing is the expectation of a big rate cut next year. If anything, further rate hikes are needed,” said Phillip Colmar, global strategist at MRB Partners.

"The statement left the door open for another rate hike if the data-dependent Fed deems it necessary, but the tone of the statement was more neutral than overtly dovish or hawkish," said Quincy Krosby, chief global strategist at LPL Financial.

Lex Sokolin, managing partner of Generative Ventures, a Web3 investment fund, said the Fed's statement "doesn't change the narrative around cryptocurrencies. We're already in a risk-off environment. Things could change with the Russo-Ukrainian war or the U.S. recession." More catastrophic, but tech and financial valuations are fairly stable, and AI may be an outlier."

Sokolin expects "a few more rate hikes" but "the hardest work of absorbing the COVID-19 supply chain shock and associated money-printing subsidies has already been done."