![]() The Fed “wants to make sure they don’t make the mistake of failing to tighten enough or loosening policy too soon,” says Bob Michele, chief investment officer and head of the global fixed income, currency & commodities group at J.P. (For Morningstar’s take on the outlook for Fed policy, see our latest update here, and for the latest stock market outlook, visit here.) A month ago, the Fed was expected to stop raising rates when it hit a target of 4.50%-4.75%. The Fed is now expected to take the federal-funds rate toward a target rate of 5.25%-5.50% in early 2023, according to the CME FedWatch Tool. The result was that, as has repeatedly been the case this year, following the Fed meeting the bond market once again ratcheted up expectations for how high the Fed will ultimately have to raise interest rates. “It’s very premature to be thinking about pausing rate hikes,” he said. This was the fourth consecutive rate hike of three-quarters of a point, an unprecedented pace of interest-rate increases.īut what got investors’ attention were comments by Fed Chair Jerome Powell when he spoke to reporters following the policy-setting Fed meeting. On Wednesday, the Fed announced it was raising the federal-funds rate target by another 0.75 percentage points to a target range of 3.75%-4.00%. When it comes to inflation, he says, “the Fed is going to stay on point until it sees the whites of the eyes.” Rate Expectations Go Still Higher But when it comes to a determination to fight inflation, “the Fed has been pretty consistent, even if the market doesn’t want to acknowledge that.” “The market and investors keep looking at the Fed to signal that rate increases are done and it’s the ‘all clear’ signal,” says Kevin Holt, chief investment officer for U.S. The lows for stock prices may not yet be in, and for some parts of the bond market, yields may still head higher. But the takeaway was that until inflation shows sustained signs of heading lower, rates are heading still higher and will stay that way for a while.įor the stock and bond markets, that means the coast isn’t clear yet. It may well be that at the next Fed meeting in December rates won’t be increased by as much, analysts say. That hope had helped lift stocks during their October rally from September bear-market lows. Markets headed into the Fed meeting on watch for signs of a “pivot” away from an unprecedented series of aggressive interest-rate increases, and perhaps a sense that the Fed was starting to think about an end to raising rates. ![]() ![]() Investors can be excused if after this week’s Federal Reserve meeting, they feel a bit like Charlie Brown after Lucy pulls the football away. ![]()
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