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The Federal Reserve raised interest rates to the highest level in 22 years. How are Wall Street elites interpreting the rate hike meeting?

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On Wednesday afternoon Eastern Time, the Federal Reserve approved a 25 basis point rate hike, marking the 11th rate hike in 17 months and bringing the federal benchmark borrowing cost to its highest level in 22 years.

Original Title: "Fed Raises Interest Rates to Highest Level in 22 Years, Powell Warns No Rate Cuts This Year"

Original Source: BitpushNews by Mary Liu

Investors are paying attention to whether there are signs that this may be the last interest rate hike of this round. Although policymakers stated at the June meeting that there will be two more interest rate hikes this year, the financial market has already factored in the possibility that there will be no more interest rate hikes this year.

The S&P 500 index closed basically flat on Wednesday, while the tech-heavy Nasdaq index fell slightly. The Dow Jones Industrial Average rose for the 13th consecutive time, gaining 82 points or 0.2%, setting a record for the longest winning streak since January 1987. BTC rose 0.8% in the past 24 hours, trading at $29,470. Ethereum rose slightly by 0.5%.

Additional Policy Tightening

A recent survey conducted by Reuters of 106 economists showed that most respondents expected today's interest rate hike to be the last of this cycle, but the Fed's forecast suggests otherwise.

The research analyst Matt Kunke from GSR, a cryptocurrency trading firm and liquidity provider, pointed out that the June Summary of Economic Projections (SEP) from the central bank showed that the median forecast of Federal Reserve officials is for two more interest rate hikes this year. Kunke said, "The market has not fully accepted this view and continues to suggest that the probability of one rate hike (about 65%) is greater than that of two rate hikes (about 27%)."

Powell stated at the press conference that the central bank has not made any decisions regarding future interest rate hikes, but he made it clear that the fight against inflation is not over.

The data released by the US Department of Labor shows that the year-on-year inflation rate in June was 3%, a significant decrease from the peak of 9.1% in June 2022. However, the "core" inflation index favored by the Federal Reserve, which excludes the more volatile costs of food and energy, still increased by 4.6% in May compared to the same period last year.

The statement after the Federal Reserve meeting shows that "the committee will consider the cumulative tightening of monetary policy, the lag of monetary policy's impact on economic activity and inflation, and economic and financial development."

Some Federal Reserve officials, including board member Christopher Waller and Dallas Federal Reserve Bank President Lorie Logan, have indicated that they believe the cumulative effects of previous rate hikes have been absorbed into the economy. As inflation remains above the Fed's target, they believe further rate hikes may be necessary to further ease price pressures.

Federal Reserve Chairman Powell reiterated this point at a press conference, saying that if the data shows it is necessary, there may be further interest rate hikes in September. He said, "We may choose to keep it unchanged at that meeting, but as I said, we will carefully evaluate it at each subsequent meeting."

This year is unlikely to cut interest rates

Powell also mentioned that inflation has slowed since the middle of last year, but there is still a long way to go to reach the Fed's 2% target. He believes that the economy will achieve a soft landing and it is unlikely to cut interest rates this year.

Powell pointed out that some Federal Open Market Committee (FOMC) participants have incorporated rate cuts for next year into their economic forecasts, but he said, "This is the judgment we must make, how confident are we that inflation will actually fall to our 2% target."

Powell still believes that the Federal Reserve can reduce inflation without causing a sharp economic downturn, although he said "there is still a long way to go before certainty."

When it comes to the topic of interest rate cuts next year, Powell said that it will be a "judgment" made based on their own "confidence".

How to interpret as a professional?

Goldman Sachs Asset Management's global fixed income macro strategist, Gurpreet Gill, said on Wednesday that any new signs of inflation could mean a longer path to rate hikes for the Federal Reserve. Given the uncertainty surrounding the end of this rate hike cycle, Gill said that if more progress is made in reducing inflation, it will limit the rise in US Treasury yields. If inflation continues to cool, the 10-year Treasury yield may even decline. However, a strong labor market and economy will slow the potential decline in yields.

Gurpreet Gill said: "Today's Federal Reserve meeting is one of the most certain and uncertain meetings of this cycle. The 0.25% rate hike has been fully digested and widely expected by forecasters and investors. However, there is still disagreement among investors as to whether this marks the last rate hike of the current tightening action."

Goldman Sachs stated in a report to clients that the Federal Reserve's statement does not imply a slowdown in future rate hikes, but the bank expects a rate hike in September.

Edward Jones investment strategist Angelo Kourfafas said, "The message conveyed to the market is that it has not had any driving effect. People are always worried about major accidents happening."

Northwestern Mutual's Chief Investment Officer, Brent Schutte, stated that Powell's message is clear: the Federal Reserve will wait for economic data before making any new decisions. "I don't think the Fed will stop acting unless they see a decline in wage inflation."

MRB Partners global strategist Phillip Colmar said, "The market is mispriced in expecting a significant interest rate cut next year. If anything, further rate hikes are needed."

LPL Financial's Chief Global Strategist, Quincy Krosby, said, "If the data-dependent Federal Reserve deems it necessary, this statement opens the door to another rate hike, but the tone of the statement is more neutral rather than clearly dovish or hawkish."

Lex Sokolin, Managing Partner of Web3 investment fund Generative Ventures, stated that the Federal Reserve's statement "will not change the narrative related to cryptocurrency. We are already in a safe haven environment. With the Russia-Ukraine war or a US economic recession, things may become more catastrophic, but the valuations of technology and finance are quite stable, and artificial intelligence may be an outlier."

Sokolin expects "there will be a few more rate hikes", but "the most difficult task, which is absorbing the supply chain impact of the new crown epidemic and related printing subsidies, has been completed."