FOMC recap: Fed delivers 75bps, but Powell throws cold water on hawks

As we noted in our FOMC preview report, the market had already fully “priced in” a 75bps (0.75%) rate hike from the Federal Reserve, with only an outside chance at a full 100bps (1.00%) move, so today’s as-expected 75bps increase, bringing the benchmark Fed Funds rate to the 2.25-2.50% range, has had only a minimal impact on price by itself.

Despite the lack of fireworks from this month’s decision itself, there are still actionable tidbits to glean from the central bank’s monetary policy statement and Fed Chairman Powell’s ongoing press conference:

The FOMC’s monetary policy statement

As the “redline” comparison below shows, there were only small tweaks to the central bank’s monetary policy statement:

Downgraded “Overall economic activity appears to have picked up after edging down in the first quarter” to “Recent indicators of spending and production have softened”
Acknowledged higher food prices in addition to energy.
Recharacterized Russia’s “invasion” of Ukraine to a “war”
Removed the reference to COVID related lockdowns in China and their impact on supply chains.
The vote was unanimous after Esther George’s dovish dissent last month.

Source: Federal Reserve

Fed Chairman Jerome Powell’s press conference

As all central bankers are wont to do, Fed Chairman Jerome Powell is trying to toe the line between offering useful guidance and avoiding pre-committing to any specific policy path in his press conference. Indeed, he explicitly stated that the committee will go “meeting-by-meeting” and give less clear guidance now that interest rates are “in the range of neutral.”

On balance, the Fed chief is coming off as relatively dovish, and traders have taken that message to heart, driving down the implied odds of a 75bps interest rate increase in September from above 50% to roughly 40% according to the CME’s FedWatch tool.

Other headlines from Powell’s press conference so far:

FOMC STRONGLY COMMITTED TO BRINGING INFLATION DOWN
PACE OF RATE HIKES TO DEPEND ON INCOMING DATA
ANOTHER UNUSUALLY LARGE INCREASE TO DEPEND ON DATA
LIKELY APPROPRIATE TO SLOW INCREASES AT SOME POINT
FED TO OFFER LESS `CLEAR GUIDANCE' ON RATE MOVES, WILL MAKE DECISIONS MEETING-BY-MEETING
POLICY CURRENTLY AT NEUTRAL, NEED TO GET TO AT LEAST A MODERATELY RESTRICTIVE LEVEL
TAKE EST. FOR RATES NEXT YEAR `WITH A GRAIN OF SALT'
PATH TO SOFT LANDING HAS NARROWED, MAY NARROW FURTHER
DO NOT THINK THE US IS CURRENTLY IN A RECESSION
HAVEN'T MADE DECISION ON POINT WHEN TO SLOW RATE HIKES
THERE'S SOME EVIDENCE LABOR DEMAND MAY BE SLOWING A BIT

Market impact

Because the monetary policy statement met the market’s expectations almost word-for-word, there was essentially no notable reaction to the initial release. However, as we go to press, traders are clearly acknowledging the dovish tone of Powell’s press conference. Most importantly, treasury yields are declining across the curve, with the 2-year yield dropping 6bps to 3.0% and the benchmark 10-year now yielding 2.74%, down 7bps, to test its lowest level since mid-April.

Not surprisingly, stocks are enthused by the potential for less aggressive interest rate hikes, with major indices rising by between 1.5% (the Dow) and 4% (the Nasdaq Composite). The greenback is seeing major sell pressure come in to fall by nearly 100 pips against most of her major rivals, and gold is testing 2-week highs in the mid-$1730s.

As long as we don’t get any late surprises from Powell, these initial trends could extend further as traders price in the potential for slower rate hikes from the Fed throughout the rest of 2022.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.