Fed Chairman Powell speaks after the central bank raises rates by three-quarters of a point

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

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

In fact, this year so far stocks ended the day higher after the Fed raises interest rates.

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

–Darla Market

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

The central bank’s move raises the benchmark overnight lending rate to a range of 2.25% to 2.5%.

The rate hike comes as the Fed tries to cool inflation and stave off a recession.

read more here.

–Darla Mercado Jeff Cox

Stock and bond prices have risen in the weeks leading up to Wednesday’s expected rate hike, which could put markets at risk of a pullback if the Federal Reserve stays the 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 from its rate hikes in a bid to stave off a recession. However, Fed Chairman Jerome Powell took a hawkish stance against inflation at the last meeting and could do so again on Wednesday.

“I think the Fed will be more aggressive than dovish. I think people in the market are looking for them to back off and lessen the aggressive nature of their general comment, and I think they will be disappointed at this meeting,” said Eric Merlis, CEO Citizens Financial Global Markets.

Indeed, some traders have begun to price in rate cuts next year, anticipating a pivot from the Federal Reserve. CME’s FedWatch tool shows a 100% chance that the fed funds rate will be at or above 3% in December, before declining to about a 75% chance in July 2023.

“I understand why it’s being discounted, but from a pure business standpoint you could see a lot of that setback today after the news conference,” Merlis said.

—Jesse Libra

BlackRock’s Rick Rieder said he anticipates the Fed will raise rates by 0.75 percentage point on Wednesday and there could be two more rate hikes 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’re going to 50 in September, and then frankly I think the markets have gotten to a place, which I think is correct, that maybe they’re going to 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 Chairman Jerome Powell says at his news conference on Wednesday afternoon will be key.

“The thing is to watch what they do, not what they say,” Rieder said. “I have to watch what they say more than what they do. I mean, I don’t think the 75 or the statement is going to be that interesting. And I think they have to tone down the economic section of the statement.” But I think what it says will be more important than the 75 in that the data is unambiguous for the slowdown.”

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–Darla Mercado, Patti Domm

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

Earlier, the Atlanta Fed’s GDPNow tool forecast gross domestic product to decline 1.6%.

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

Second quarter GDP data will be released on Thursday. With the first quarter seeing a 1.6% drop in GDP, economists and investors are wondering if this upcoming release will reflect two consecutive quarters of negative GDP readings.

Two consecutive negative quarters of GDP do not constitute a recession, nevertheless. The National Bureau of Economic Research makes that determination and uses multiple factors to make it.

-Darla Market

The Federal Reserve is expected to raise interest rates by 0.75 percentage point, its second increase of that magnitude since June and the first in the “modern era” of Fed policy.

The anticipated rate hike comes at a crucial time as policymakers try to curb inflation and provide the economy with a soft landing. The consumer price index of June jumped 9.1% from the previous yearY consumer spending at the dollar level it has been solid. In the meantime, jobless claims have increased, suggesting that the labor market is starting to cool down.

Investors are paying close attention to the Fed’s decision on Wednesday because second-quarter gross domestic product figures are due out on Thursday. GDP decreased 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