The U.S. Federal Reserve just announced its fourth consecutive 75 basis points increase in interest rates to subjugate consumer prices that were reported “up” 0.4% for September.
S&P 500 initially responded positively since the central bank, not too overtly, but at least signalled a possible pivot.
In its statement, the Federal Open Market Committee reiterated that ongoing rate hikes will be “appropriate – something it has repeated in each of its statements since March. This time, though, it went on to say:
In determining pace of future increases in target range, FOMC will take into account cumulative tightening of monetary policy, lags with which policy affects economic activity and inflation, and economic and financial developments.
Yield on the U.S. 10-year Treasury also slid under 5.0% following the Fed’s announcement.
On the flip side, though, private payrolls, this morning, were reported up 239,000 for October – way more than the Dow Jones estimate, reiterating that the labour market remains tight.
That’s why Chair Jay Powell, in a press conference following the rate hike suggested the terminal rate will be “higher than previously expected” and that it was “very premature” to consider pausing just yet, thereby forcing the benchmark index into paring back its earlier gains.
Thus far, his projection was for the interest rates to end up in the range of 4.50% to 4.75%. The subsequent hikes, though, were “likely, to be narrower than three-quarters of a point, Powell added.
Following today’s economic news, the key rate sits at about 4.0%.
At writing, the S&P 500 index is down more than 20% for the year.
Still, Karen Karniol-Tambour (Bridgewater Associates) says “cash” continues to be more attractive than equities. Explaining why, she said on CNBC’s “Closing Bell”:
When you look at past turns in the equity markets in situations like this, they don’t look like where we are today. Equity market keeps declining until it’s clear that the economy is slowing and the Fed is willing to make a real turn.
Karen is not convinced that the equities market has lost enough just yet; suggesting more pain ahead.
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