The Federal Reserve hiked interest rates by 25 basis points to a range of 5%-5.25%, as widely anticipated by the market, pushing borrowing costs to the highest level since September 2007.
The U.S. central bank also hinted it might be done with the tightening cycle by eliminating a phrase from the statement that anticipated additional policy firming. Nonetheless, Fed officials stated that in determining the extent to which additional policy firming may be appropriate, they would consider a number of factors, including upcoming economic data.
Fed Chair Jerome Powell said the decision for the June meeting was open and data-dependent, and that he did not intend to cut rates this year, considering the board's current inflation projections.
The SPDR S&P 500 ETF Trust SPY had a volatile session, losing 0.7% on the day, while Treasury yields moved further down, with the 10-year yield falling to 3.36%.
Here are seven market experts' reactions to the latest Fed interest rate decision and their predictions for future steps in monetary policy:
Tuttle Capital Management CEO and CIO Matt Tuttle thought the Fed set the ground for a pause without overtly announcing one. He highlighted board members' perspectives are now diverging. The Fed did signal banking conditions have improved, the labor market remained tight and inflationary pressures remained high, all of which were bearish signals for the market.
Quincy Krosby, chief global strategist for LPL Financial, said the statement was slightly more dovish, although it was clear the Fed remained data-dependent. The statement provided the FOMC with flexibility from a variety of angles, which might lead to another rate rise or to a pause if inflation continued to fall at a quicker clip.
Tom Hopkins, portfolio manager at BRI Wealth Management, assumed the Fed was aware that it raised interest rates to levels that may create discomfort, but that this was precisely the goal as it sought to battle inflation. Any noise pointing to more rises might result in a negative surprise for stock markets due to a re-pricing of expectations.
"The market is still expecting rate cuts by the end of this year but are investors putting too much hope on this rhetoric?" the expert said.
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, remarked the Fed finally signaled it was likely done with tightening for the time being and that no action should be expected at their next meeting. They will continue to maintain monetary policy tight enough to combat inflation while avoiding a meltdown that would ruin financial institutions.
According to NAR chief economist Lawrence Yun, "The latest interest rate hike by the Federal Reserve is unnecessary and harmful," further disrupting the balance sheets of many small regional banks, which are becoming "zombie-like banks."
Gina Bolvin, president of Bolvin Wealth Management Group, stressed the vote was unanimous and "evidently Powell thinks the economy is strong enough to continue to tighten." The expert noted "The tug of war between Powell and investors continues," although the latter "should remain cautiously optimistic."
Greg McBride, CFA, chief financial analyst at Bankrate, said "The Fed left themselves a path to pause, or to hike rates further if necessary."
"The highest borrowing rates in years will get a little bit higher for credit cards, home equity lines of credit, auto loans, and personal loans," the analyst added.
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