The Federal Reserve raised rates 25bps to a target range of 5.25-5.50% in unanimous vote at their July meeting as expected. According to the CME FedWatch Tool, there is a 96.5% probability of a 25-basis points rate hike today. However, there is a less than 40.0% probability of a second-rate hike at any of the remaining FOMC meetings this year. This statement is virtually identical to the June one, other than the shift to a ‘moderate’ pace of growth from ‘modest’. It is the 11th increase since March 2022, when they lifted rates from near zero.
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 26 July 2023 14:00:00 ET
The FOMC raised rates 25bps to 5.25-5.50%
Conference To Follow At 2.30 ET PM With Chairman Powell
Highlights
- 25 bps rate hike
- The Fed previously hiked rates on May 3 to 5.00-5.25%
- Decision was unanimous.
- Economic activity has been expanding at a moderate pace (vs modest pace prior)
- The statement continues to highlight ‘the extent of additional policy firming’ that may be appropriate.
- No other changes to the statement
Market Reaction After Press Conference (Updated at market close)
Expectations for a second rate hike at any of the meetings before the end of the year were largely unchanged. According to the CME FedWatch Tool, probability of a second rate hike at any of the remaining FOMC meetings this year remains under 40%.
- Dow Jones Industrial Average (DJIA) extended its winning streak to 13 sessions, closed up 0.23%, marking the longest winning streak since 1987.
- S&P 500 and Nasdaq showed minor losses, down by 0.01% and 0.16% respectively.
- Russell 2000 outperformed with a gain of 0.8%.
- EURUSD closed at 1.1089. Tomorrow the ECB is expected to raise rates by 25 basis points
- USDJPY closed at 140.23
- Crude oil trading down $-0.64 or -0.80% at $78.99
- Gold trading up $7.27 or 0.37% at $1972
- Silver up $0.23 or 0.96% at $24.92
- Bitcoin higher at $29,600
Yields Lower After FOMC on Day:
- 2-year yield 4.851%, -4.1 basis points
- 5-year yield 4.114%, -6.1 basis points
- 10-year yield 3.870%, -4.1 basis points
- 30-year yield 3.941%, -1.1 basis points
Prior to release:
- 2-yr: UNCH at 4.90%
- 3-yr: -1 bp to 4.55%
- 5-yr: -3 bps to 4.16%
- 10-yr: -2 bps to 3.90%
- 30-yr: -1 bp to 3.94%
July 26 FOMC STATEMENT CHANGES via @Newsquawk
The full statement from the July 2023 Fed Decision
Recent indicators suggest that economic activity has been expanding at a moderate 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 raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent. The Committee will continue 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