Stocks were solidly higher in early trading this week as markets and investors looked forward to the results of the most recent Federal Reserve meeting, which concluded on Wednesday. The Federal Reserve, as expected, raised interest rates by 0.25% (25bp). This move takes the benchmark federal funds rate to a target range of 4.75% - 5%, the highest level since October 2007. This was the ninth hike since March 2022, and the Federal Open Market Committee (FOMC) noted future increases will depend largely on incoming data. Most notably, the Fed set the stage for ending its rate hiking cycle, stating “The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” The softening tone came amid stress in the banking sector that has raised concerns about the system’s stability. To that point, the Fed responded in part: “The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.” Data also was released Wednesday indicating where FOMC members see rates, inflation, unemployment, and gross domestic product (GDP). Expectations for inflation now are 3.3% for this year, compared to 3.1% in December. Unemployment was lowered to 4.5%, and the outlook for 2023 GDP was revised down to 0.4%. The estimates for the next two years show the GDP projection in 2024 declining to 1.2% from 1.6% in December. Fed officials left unchanged how high they see rates rising, expecting peak interest rates for this year to be in a range of 5%-5.25%, the same as projected back in December. As they typically do, officials said they will closely monitor incoming information and assess the implications for monetary policy.
Source: GSAM, CNBC, JPMorgan, Bloomberg
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