- On Wednesday, investors priced a Fed rate hike of 50 basis point at its December meeting. This would be slower than the Fed’s recent increases.
- CME FedWatch tool indicated a 59.4% probability for a half-point rise next month, up from 44.5% just a day before.
- Jerome Powell, Fed Chairman, stated that it was “very premature” to contemplate a pause in rate increases.
On Wednesday, investors priced in a reduction in the Federal Reserve’s December interest-rate hike. They were anticipating a 50 basis point increase as they seized on new language in the central bank’s most recent policy announcement.
The Federal Open Market Committee raised rates by 75 basis point for the fourth consecutive day. CME FedWatch toolA 59.4% probability of a 50% increase was shown at the December 13-14 meeting. This is higher than the 44.5% reported a day before.
However, the chances of another rate rise of 75 basis points dwindling to 34.8% from 49% a day earlier fell to 34%.
After the Fed had included these moves in its November policy statementA new sentence was interpreted by investors as a signal that policymakers were ready to issue smaller rate increases.
The FOMC stated that “in determining the pace for future increases in target range, it will consider the cumulative tightening monetary policy, the delays with which monetary policies affect economic activity and inflation, as well as economic and financial developments.”
Jerome Powell, Fed Chairman, said that it was premature for the central bank not to consider pause rate hikes. He also noted that the Fed may have anticipated a higher terminal rate than they had.
Stocks fluctuated Wednesday as investors weighed Powell’s remarks against Fed statements. The S&P 500The initial swing was higher than the subsequent 2% drop. The Dow Jones Industrial AverageThe soaring score was about 330 points, but then the reverse happened and the score fell to more than 300 points.
The 10-year Treasury yieldAfter the Fed decision, session lows were reached. They dropped as high as 9 basis points, to 3.97%, but then returned above 4%.
As the Fed struggles to combat inflation that has soared to a four-decade high, the Fed’s latest rate increase is a result. The Consumer Price Index rose 8.2% in the year through September, while core prices accelerated to 6.6% — The highest rate of inflation since 1982.
