Stocks closed lower yesterday after the Fed raised rates by 25 basis points as expected.
After the announcement, stocks shot up. But then started to pare those gains, before finally turning lower during Fed Chair, Jerome Powell's customary press conference.
In short, the Fed raised rates by a quarter point, which puts the Fed Funds midpoint at 4.88% (range of 4.75%-5.00%). And they essentially hinted at one more 25 bps hike come their next meeting on May 2-3.
They also backed away from Mr. Powell's congressional testimony from earlier this month when he said the Fed might have to raise rates "higher than previously expected." Instead, he reiterated his expectation from December's FOMC meeting when he estimated rates would get as high as 5.1% by the end of 2023. (And one more 25 bps hike would put the midpoint at roughly 5.1% (5.13% for a range of 5.00%-5.25%).
Interestingly, he estimated the Fed Funds rate to drop to 4.1% by the end of 2024, and 3.1% by the end of 2025. So that suggests rate cuts next year and the year after.
Several inferences can be made with those projections: 1) it doesn't look like any rate cuts are coming this year, 2) inflation will have come down by year's end and in 2024, but still not enough (not 2%), which is why rates will have to stay at the relatively high rate of 4%+ throughout next year, and 3) rates may need to come down even more in 2025, suggesting a further slowing of the economy for which lower rates could help bolster it back up.
Not a lot of surprises in yesterday's announcement or presser. But for those expecting a rate cut this year, he has effectively implied it's not going to happen.
In other news, even though inflation is on the decline here in the states, it unexpectedly increased last month in the UK to 10.4% vs. the previous month's 10.1% and views for a decline to 9.9%.
That doesn't mean that's what will happen here. But it was an interesting piece of data. And might be looked at as a bit of foreshadowing given Powell's comment yesterday that "the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy."
All that being said, in spite of the recent volatility, the markets have been pretty resilient this year, and really, ever since they put in their bottom on October 13 last year. Same goes for the economy with a strong labor market, strong retail sales, and a Q1 GDP estimate of 3.2%.
So plenty of good things happening in the economy. But the persistently high inflation, ongoing rate hikes, and the latest banking scare have definitely given investors pause. But as the saying goes, bull markets typically 'climb a wall of worry.' And there's definitely still some things to worry about.
Another saying, is "be greedy when others are fearful." That's from Warren Buffett, of course, who is considered to be one of the greatest investors of our time.
He has been making some moves lately. And when Mr. Buffett makes a move, it can send a signal to other investors. To learn more about what Mr. Buffett is buying and what that could mean for you, be sure to read our latest commentary...
Warren Buffett's Stock Buys are Sending a Big Signal