Wall Street Gets the Fed’s Memo on Rate

The stock markets are finally listening to the Federal Reserve’s Chairman, Jerome Powell. According to everyone’s anticipation, the Federal Reserve raised the interest rates on Wednesday by 75 basis points after raising it by the same figure two times prior. Powell and other fed officials went further to raise expectations of more interest rate increases this year and early next year to bring rates to 4.6%. 

Markets React to Fed Rates

The S&P 500, Nasdaq, and Dow Jones all closed the day lower at 1.75%. It comes in sharp contrast with the rally that followed the July Fed meeting after the same 75 basis points interest rate.

What exactly changed since the July rate increase? Jerome Powell mentioned in August during the Jackson Hole meeting that the US central bank will continue to increase rates till the job of bringing inflation down is done. It looks like the Chairman’s short and precise comments at the Jackson Hole conference were the overall deciding factor for the stock market.

Powell was to double down on that statement again on Wednesday when he said during the rate hike announcement that his message since the Jackson Hole meeting has not changed. He stated at the press conference again that the FOMC’s resolution is to bring down inflation and it will continue to raise rates till the job is done. It would be apparent that the Fed is saying the stock market be damned.

More Rate Hikes This Year

With two more meetings of the FOMC remaining in 2022, the markets are looking ahead in apprehension and making room for the possibility of another 75 basis points rate increase in October. That will become the fourth one this year, and then there might be a 50-basis point hike in December to close the year.

A former Governor of the Federal Reserve, Larry Meyer, has helped to take it a few steps further by forecasting that there would be a 50 basis points hike in February 2023 and another hike of 25 basis points in March to finalize the rate hike cycle. That would then bring the Federal Reserve’s terminal rates to between 5.00% and 5.25% – that is a complete 2.00 points more than what was set on Wednesday.

Powell and other officials of the Federal Reserve might have had a good time on Wednesday after confirming that the stock markets realize they are in this for the long haul. It does not matter that investors might not like it. 

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