The Federal Reserve left rates unchanged in a target range of 5.00-5.25% in unanimous vote at their June meeting as expected. Market Fed futures pricing suggested 8% of a 25-bps hike before the decision while the vast majority of economists predicting no change. Stock markets sold off and the US dollar went higher after the Fed raised the dot plot, with the median moving all the way to 5.6%, which implies two more hikes. The 2024 dot moved up to 4.6% from 4.3%, suggesting a higher-for-longer path. Job gains have been robust in recent months, and the unemployment rate has remained low but both CPI and PPI have been coming down as the Federal Reserve hopes.
Federal Reserve FOMC Statement
Federal Reserve Announcement Wednesday 14 June 2023 14:00:00 ET
The FOMC kept rates unchanged 5.00-5.25%
Conference To Follow At 2.30 ET PM With Chairman Powell
Highlights
- Decision was unanimous.
- The Fed previously hiked rates on May 3 to 5.00-5.25%
- Statement continues to say “inflation remains elevated”
- Tighter Credit Likely to Weigh on Activity
- 2023 Unemployment Seen At 4.1% Vs 4.5%
- Median Rate Forecasts Rise To 5.6% End-
23, 4.6% End-24 - `Extent Of Additional’ Firming To Hinge On Economy
- Recent indicators suggest that economic activity has continued to expand at a modest pace
- Job gains have been robust in recent months
- “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.”.
- The statement continues to highlight ‘the extent of additional policy firming’ that may be appropriate.
Market Reaction After FOMC
- US dollar is 50-70 pips higher across the board following the FOMC decision.
- USD/JPY climbing to 140.18 from 139.43.
Market Reaction After Press Conference
- The market trades at the of the day following Fed Chair Powell’s press conference.
Yields Higher After FOMC on Day:
Prior to release:
- 2-yr: -8 bps to 4.62%
- 3-yr: -5 bps to 4.25%
- 5-yr: -6 bps to 3.96%
- 10-yr: -5 bps to 3.79%
- 30-yr: -4 bps to 3.90%
June 14 FOMC STATEMENT CHANGES via @Newsquawk
The full statement from the June 2023 Fed Decision
Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
FOMC dot plot and central tendencies (From June Meeting)
EOY 2023 5.6 and terminal rate
- The FOMC dot plot for May 2023 show the median rate at the end of 2023 at 5.6% versus 5.1% in March 2023
- For 2024, the median fed funds target rate is 4.6% vs 4.3% in March
- For 2025, the median fed funds target rate is 3.4% vs 3.1% in March
Implementation Note issued June 14, 2023
FOMC dot plot and central tendencies (From March Meeting)
EOY 2023 5.1 and terminal rate
- The Dot plot from March 2023 show the median rate at the end of 2023 at 5.1% vs 5.1% at the December 2022 projections
- For 2024, the median fed funds target rate is 4.3% vs 4.1% in December
- For 2025, the median fed funds target rate is 3.1% vs 3.1% in December
Implementation Note issued May 3, 2023
Source: Federal Reserve
From the TradersCommunity Research Desk