Powell said during his press conference that the Fed hopes to become data dependent at some point. Not only was some of the Fed’s hawkishness already priced into markets, but Fed chair Powell may have given an extra boost to markets as well. “Traders have been pricing in a lot of hawkishness for the Fed, as well as watching for signs that the central bank is getting worried about the economy and planning a slower path of hikes,” wrote Giles Coghlan, chief analyst at HYCM. The S&P 500 fell almost 11% from June 2, the peak of a short rally, through Tuesday’s close. Dollar Index (DXY) dropped 0.7% to just under 95.Īs for stocks, the recent selloff seems to have been enough to keep the indexes higher on the day, post-Fed.
Also, with higher rates causing economic growth expectations to drop, investors flock to safe-haven assets like the greenback. financial assets look more attractive, global investors buy more dollars. dollar, which had been moving higher along with yields. The stability seen in bond yields also translated to stability in the U.S.
The 2-year Treasury yield closed at just over 3.2%, just under a multiyear high of 3.435% Tuesday, while the 10-year yield traded closed near the same level, below its multiyear closing high of 3.482% hit on Tuesday.īond yields fall when their prices rise, so “the initial reaction was a relief rally,” says Jack McIntyre, portfolio manager of global fixed income at Brandywine Global Investment Management. It seems-for the moment-the markets had already reflected even higher interest rates. The median Fed member now sees the benchmark lending rate hitting 3.75% by the end of 2023. The Fed also laid out a fairly aggressive rate-hiking path going forward. The drastic rate hike-a quarter-point is standard-is in response to inflation that soared to new heights in May. The Fed said that it is lifting the benchmark lending rate by a three-quarter point, in line with the market’s expectation. One of the key takeaways for the day: “The market may have already priced in a higher-than-expected jump,” wrote Mike Loewengart, managing director of investment strategy at ETrade.
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