Key Points of Federal Reserve Raises in Interest Rate by 25 Basis Point:
- The Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday as expected.
- Fed Chair Jerome Powell stated that there would be no rate cuts this year, causing initial spikes in major indexes followed by a close lower in choppy trading.
- The S&P 500 and Dow took hits after Powell’s press conference due to high inflation, with the Dow falling 0.9%, the S&P 500 sliding 0.8%, and the Nasdaq 0.6% lower.
- The Fed projected just one more rate hike for the year, and some additional policy firming may be needed, with the majority of Fed officials seeing the key policy rate topping out at 5.1% at the end of 2023.
- The U.S. banking system is sound, but recent developments will likely result in tighter credit conditions, according to the Fed.
- Among active stocks, Nvidia gained as analysts lauded its announcements from the GTC developer conference, while Nike was the biggest drag on the Dow, falling 3.4% after its earnings report divided analyst opinions.
- Yields pushed lower, with the 10-year Treasury yield down 13 basis points at 3.47% and the 2-year yield down 23 basis points at 3.95%.
- The CME FedWatch Tool is now pricing in about even odds between a 25-basis point hike and no hike at all at the next meeting in May, as well as a small chance of a cut in June, causing market uncertainty with investors carefully watching for future developments.
Details of Federal Reserve Raises in Interest Rate by 25 Basis Point:
Federal Reserve Raises Interest Rates, Major Indexes Close Lower
On Wednesday, the Federal Reserve raised its benchmark interest rate by 25 basis points, as expected, and Fed Chair Jerome Powell stated that there would be no rate cuts this year. This led to Wall Street’s major indexes initially spiking to their highest levels in more than two weeks, but they ultimately closed lower in choppy trading.
The S&P 500 (SP500) and Dow (DJI) both took hits after Powell’s press conference, during which he stated that Fed officials don’t see rate cuts this year due to high inflation. Powell also stated that the Fed is willing to raise rates higher than expected if needed.
The Dow (DJI) fell 0.9%, the S&P 500 (SP500) slid 0.8%, and the Nasdaq (COMP.IND) was 0.6% lower. The three major indexes swung between gains and losses in typical market volatility following the Fed’s move.
While the Fed projected just one more rate hike for the year, some additional policy firming may be needed. The majority of Fed officials see the key policy rate topping out at 5.1% at the end of 2023. The Fed did consider a pause in the days leading up to the meeting, Powell said.
The Fed stressed that the U.S. banking system is sound, but recent developments will likely result in tighter credit conditions. Powell said the Fed will use all tools to ensure that bank deposits remain “safe and sound”.
Meanwhile, among active stocks, Nvidia (NVDA) gained as analysts lauded its announcements from the GTC developer conference. Nike (NKE) was the biggest drag on the Dow, falling 3.4% after its earnings report divided analyst opinions.
Yields pushed lower, with the 10-year Treasury yield (US10Y) down 13 basis points at 3.47% and the 2-year yield (US2Y) down 23 basis points at 3.95%. The CME FedWatch Tool is now pricing in about even odds between a 25-basis point hike and no hike at all at the next meeting in May, as well as a small chance of a cut in June.
Overall, the Fed’s decision to raise interest rates and Powell’s comments have caused market uncertainty, with investors carefully watching for future developments.
About Federal Reserve:
The Federal Reserve is the primary central banking system in the United States, established on December 23, 1913, through the Federal Reserve Act. The legislation was introduced following a series of financial panics that highlighted the need for centralized control of the monetary system to mitigate financial crises.
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