The Federal Reserve did not raise rates, but it indicated that the key rate would likely be raised in July. The policymakers are expected to end their one-meeting respite due to the continued strength of the job market and the easing of the banking crisis.
The new quarterly projections, released along with the Fed's meeting statement, indicate that members of the policy committee are in agreement about the need for an additional hike. The committee is also strongly leaning towards a further hike following the July Fed meeting.
The S&P 500 began to decline after the Fed released its policy statement and projected futures. However, it soon recovered.
In his 2:30 pm. ET news conference, Federal Reserve Chair Jerome Powell stated that "nearly all" Fed members believe "some additional rate increases this year will be appropriate". ET news conference.
He said that inflation risks are still on the upside. You're not seeing much progress in the core inflation rate.
Powell stated that while no decision had been made regarding a hike, "I expect it to be a live discussion," which means a hike would be on the table.
Federal Reserve Rate Projections
A solid majority of 16 Fed policymakers anticipate one more rate increase to a range between 5.25% and 5.5%. This is up from just seven out of 18 policymakers in March.
Twelve of the 18 members of the Fed committee expect at least two quarter point moves in a range between 5.5% and 5.75%. Only four Fed committee members predicted rates would reach that level in March.
Before the Fed's release at 2 pm, the markets had 58.5% odds on a quarter point hike in July. After 2 p.m. the odds jumped up to 71%, but then fell to 60% when Powell spoke. Markets see only 11% chance of another quarter-point increase in September.
The markets don't believe the Fed's guidance. It is implied that the Fed is either wrong or bluffing. Perhaps they are hoping to keep the S&P 500 under control.
In fact, the Fed might be wrong. The Fed may have been right about the "robust gains" in employment, but other labor market indicators, like hours worked, paint a much more softer picture.
Fed policymakers now expect a 1% GDP increase this year, up significantly from the 0.4% expected in March. They expect that the unemployment rate will average 4.1% during the fourth quarter. This is an improvement over the 4.5% forecast in March.
S&P 500 Reaction
The S&P 500 fell initially by around 0.7% after the Fed's statement and projections. However, it recovered to gain 0.1% in the stock market activity on Wednesday afternoon. The Nasdaq composite increased by 0.3% following Powell's news conference. However, the Dow Jones fell 0.6%.