Stock

Fed raised rates by 75 bps: ‘they’re responding to backward-looking indicator’

The S&P 500 index is up nearly 3.0% on Wednesday after the U.S. Federal Reserve announced its biggest rate hike since 1994.

A brief recap of the FOMC meeting

Benchmark interest rates raised by 75 basis pointsA 50 – 75 bps increase expected in the July meetingYear-end target for the federal funds rate lifted to 3.4%Outlook for economic growth in 2022 lowered to 1.7%

The benchmark rate is now in the range of 1.5% to 1.75% – highest since the first quarter of 2020. FOMC remains confident that headline inflation will come down sharply in 2023 to 2.6%. Chair Jerome Powell said:

I do not expect moves of this size to be common. But we’ll make decisions meeting by meeting and we’ll continue to communicate our thinking as clearly as we can. We want to see progress. If we don’t see progress, that could cause us to react.

Expert reacts to the 75-bps increase

Reacting to the rate hike on CNBC’s “Power Lunch”, John Bellows (Portfolio Manager at Western Asset) said there’s a risk that a 75 basis points increase will prove out to be a mistake.

Fed is responding to last week’s CPI print that, at least parts of it, tend to be backward looking. So, the risk is, they’re responding to backward-looking indicator while forward-looking indicators do signal a turn in activity and probably in prices.

U.S. inflation hit a new forty-year high of 8.6% in May versus the Dow Jones estimate of 8.3%.

The post Fed raised rates by 75 bps: ‘they’re responding to backward-looking indicator’ appeared first on Invezz.

Disclaimer: MonopolyWinnersUpdates.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2022 MonopolyWinnersUpdates.com. All Rights Reserved.

To Top