The Federal Reserve raises interest rates to the highest level in 22 years. How do industry insiders interpret this?

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

Source: BitpushNews by Mary Liu

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

Investors are paying attention to whether there are signs that this could be the last rate hike of this cycle. Although policymakers indicated at the June meeting that there would be two more rate hikes this year, the financial markets have already priced in the possibility of no further rate hikes.

The S&P 500 index closed mostly flat on Wednesday, while the tech-heavy Nasdaq index edged slightly lower. The Dow Jones rose for the 13th consecutive time, gaining 82 points or 0.2%, marking the longest winning streak since January 1987. BTC increased by 0.8% in the past 24 hours, trading at $29,470. Ethereum saw a slight increase of 0.5%.

Additional Policy Tightening

A recent survey conducted by Reuters with 106 economists showed that most respondents expect today's rate hike to be the final one of this cycle, but the Fed's projections suggest otherwise.

Matt Kunke, an analyst at crypto trading company and liquidity provider GSR Research, pointed out that the June Summary of Economic Projections (SEP) by the central bank indicated a median forecast of two more rate hikes this year. Kunke stated, "The market has not fully embraced this view and continues to imply greater odds of one rate hike (about 65%) than two rate hikes (about 27%)."

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

Data released by the U.S. Department of Labor showed that the year-over-year inflation rate for June was 3%, a significant drop from the peak of 9.1% in June 2022. However, the Fed's favored "core" inflation measure - which excludes volatile food and energy costs - still increased by 4.6% in May compared to the same period last year.

The post-meeting statement from the Federal Reserve stated, "The Committee will assess the cumulative tightening of monetary policy, the lags in the impact of monetary policy on economic activity and inflation, and economic and financial developments."

Some Federal Reserve officials, including Board members Christopher Waller and Dallas Federal Reserve Bank President Lorie Logan, have expressed the view that the cumulative effects of previous rate hikes have become embedded in the economy. Given that inflation remains above the Fed's target, they believe further rate hikes may be needed to further alleviate price pressures.

Fed Chair Jerome Powell reiterated this point at a press conference, stating that if the data warrants it, there could be further rate hikes in September. He said, "We may well choose to keep the current stance of monetary policy unchanged at the next meeting, but, as I said, we will be carefully assessing incoming data and the evolving risks."

Unlikely to Cut Rates This Year

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

Powell pointed out that some Federal Open Market Committee (FOMC) participants have factored in rate cuts for next year in their economic projections, but he said, "It's a judgment we have to make as to how much confidence we have that inflation will actually move back to 2% goal."

Powell remains confident that the Fed can lower inflation without causing a sharp downturn in the economy, though he acknowledged there is still "a long way to go" to be certain.

When discussing rate cuts next year, Powell said it will be a "judgment" based on their own "confidence" levels.

How are the Professionals Interpreting?

Gurpreet Gill, global macro strategist at Goldman Sachs Asset Management, said on Wednesday that any new signs of inflation could mean a longer path for Fed rate hikes. Given the uncertainty around 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 down, even the yield on 10-year Treasury bonds could decline. However, a strong labor market and economy will dampen the potential decline in yields.

Gill said, "Today's Fed meeting is one of the most certain and uncertain among this cycle. The 0.25% rate hike has been widely anticipated and priced in by forecasters and investors. However, there is still disagreement among investors as to whether this marks the end of the current tightening cycle."

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

Angelo Kourfafas, investment strategist at Edward Jones, said, "The message that is being conveyed to the market is that it's not going to provide any impetus. There's always a concern that something untoward may occur."

Northwestern Mutual Chief Investment Officer Brent Schutte said the message from Powell is clear that the Fed will wait for economic data to make new decisions. "I don't think the Fed will stop acting unless they see wage inflation falling."

Phillip Colmar, global strategist at MRB Partners, said, "Where the market is mispricing is in the expectation of a significant interest rate cut next year. If anything different, it's the need for further rate hikes."

Quincy Krosby, Chief Global Strategist at LPL Financial, said, "If the data-dependent Fed deems it necessary, this statement opens the door for another rate hike, but the tone of the statement is more neutral rather than explicitly dovish or hawkish."

Lex Sokolin, Managing Partner at Web3 investment fund Generative Ventures, said the Fed's statement "does not change the narrative around cryptocurrencies. We are already in a safe-haven environment. With the Russia-Ukraine conflict or a U.S. economic downturn, things may become more catastrophic, but the valuations of technology and finance are fairly stable, and artificial intelligence may be an outlier."

Sokolin expects "a few more rate hikes," but "the most daunting work, which is absorbing the supply chain shock from the COVID-19 pandemic and the related money printing subsidy, has already been done."