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Reactions: Fed raises rates by 0.75 percentage points, signals slowing economy

NEW YORK, June 15 (Reuters) – The Federal Reserve on Wednesday raised its target interest rate by three-quarters of a percentage point on Wednesday to stem a disruptive surge in inflation, and forecast a slowing economy and a rise in unemployment in the coming months. .

The action lifted the short-term federal funds rate to a range of 1.50% to 1.75%, and Fed officials at the median expected the rate to rise to 3.4% by the end of the month. end of this year and to 3.8% in 2023 – a substantial change from projections in March which saw the rate climb to 1.9% this year.

HISTORY: find out more FEDERATION STATEMENT:

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MARKET REACTION:

EQUITIES: US stocks rose sharply in the wake of the Fed hike.

COMMENTS:

SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK

“The Fed changed policy and the markets actually took that information and pretty much sold it. next meeting, that’s when the market rose is kind of a vote of confidence that the Fed is finally waking up to the inflation problem and is ready to take a more aggressive stance.”

JASON WARE, DIRECTOR OF INVESTMENTS FOR ALBION FINANCIAL GROUP, SALT LAKE CITY, UTAH

“They’re doing what they can in a fast-moving economy. Things are moving fast, the Fed knows they’re behind the curve and trying to bring inflation down and the tools at their disposal are blunt instruments.”

“They reiterated that they are ready to do whatever it takes to bring inflation down. We have to give (Powell) some slack given how difficult things are.”

“In terms of the economy and our view of recession – the risk in 2022 is quite low, but certainly in 2023 and 2024 the risk of recession has increased over the past 3+ months due to the threat of a policy error by the Fed.”

“The most interesting data point today is Esther George’s dissent. She’s not shy about raising rates. And here she’s saying 50 basis points is enough for now. She’s looking at this notion that we were behind the inflation curve, we should have taken care of that a year ago and now we are heading aggressively towards a downturn.”

MAURICIO AGUDELO, HEAD, FIXED INCOME, HOMESTEAD FUNDS, ARLINGTON, VIRGINIA

“They’re moving full speed ahead. At this point when you look at oil prices and gasoline futures, they have to tackle headline inflation. They’re still playing catch-up at this If you look at the dot chart for December, the fed funds rate was going to be slightly below 1% for the end of 22. We have now revised those expectations up to a terminal rate of 3.4% by the end of this year. When I look at the market price of future expectations for the December meeting, the implied rate is around 3.7%. The door is still open to do more, especially at the July meeting and maybe at the September meeting.”

“Look how quickly we’ve adjusted expectations from 50 bps to 75 bps in a matter of days. I think at this point all options are on the table.”

ELLEN HAZEN, CHIEF MARKET STRATEGIST, FLPUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS

“People skim through the statement, skim through the Summary of Economic Projections (SEP) and take a look at it, but in general it’s not too surprising. The biggest takeaway from the SEP for me is the track so that they have a soft landing just got shorter and narrower meaning they’re expecting higher inflation, they’re expecting higher unemployment, they’re expecting lower GDP and Atlanta’s GDPNow forecast is gone to zero. So whether or not we can escape this without a recession is in question. Everyone knew but now the Fed is admitting it.”

“Most of the additional data points have been negative, even this morning the retail sales numbers were weak so over the last four business days you’ve had a number of negative economic numbers.”

STEPHEN MASSOCCA, SENIOR VICE PRESIDENT, WEDBUSH SECURITIES, SAN FRANCISCO

“I don’t find that surprising if you’ve been paying attention. The Fed did the right thing – they indicated early on that they were going to be more aggressive in this meeting. When you look at the market reaction, nobody was really surprised.”

“I think it’s too much, too fast, too fast, too far. In my opinion, a lot of that inflation is due to energy prices and at some point oil stops going up.”

PETER YI, DIRECTOR, NORTHERN TRUST ASSET MANAGEMENT, CHICAGO

“The market had fully priced in that 75, but due to how aggressively the market recalibrated its expectations over the past three trading days, the market was basically giving them the green light. she had to be opportunistic and saw it as a window or to establish better credibility to fight inflation and I think that comes at the expense of the credibility of their forward orientation And if I had to guess Esther George would be probably dissenting because it’s going to be difficult to give a forward direction and it’s going to be interesting to see how Powell approaches that forward direction because it’s something they’ve hung their hats on.”

BRAD McMILLAN, DIRECTOR OF INVESTMENTS FOR THE COMMONWEALTH FINANCIAL NETWORK, WALTHAM, MASSACHUSETTS

“The Fed is trying to address legitimate concerns about inflation… What it did today was the least it could have done to maintain any credibility.”

“It doesn’t solve the Fed’s lagging the curve argument. It just brings them one step closer to catching the curve.”

“At this point, the Fed is trying to catch up without disrupting the markets too much. When we get into the press conference, we’ll have more details on what’s going on.”

MICHAEL ROSEN, INVESTMENT DIRECTOR AT ANGELES INVESTMENT ADVISORS, SANTA MONICA

“The Fed is in a very difficult position that, frankly, it has put itself in by mismanaging monetary policy and letting inflation rise as much as it has. There’s just no sign that inflation is turning and this is happening at a time when some of the economic data is weakening – this morning’s retail sales data, for example.The so-called ‘soft landing’ seems increasingly more tenuous.

“I hope Powell is sounded out on the balance between the dual mandate of keeping inflation low and employment high. It’s a balance that seems to be getting harder and harder to strike.”

KATHY LIEN, CHIEF EXECUTIVE OFFICER, BK ASSET MANAGEMENT, NEW YORK

“The Fed took a pretty aggressive move and hiked 75 bps. We’re seeing some volatility in FX, which is no surprise given there’s usually a lot of action in both directions. before Powell spoke, but what you can see is that the lack of a positive dollar reaction – we had a instinctive rally and then now we’re pulling back – is a reflection of heightened market concerns about the recession. “

“That’s the biggest risk of the big move the Fed made today and in an environment where retail sales have been a big hit, I think there’s going to be a lot of talk about the recession and I think Powell The foundations for further tightening will likely lengthen and between what we are already seeing in terms of rising yields, as well as the trajectory of further ups and the data already falling, there will be much more focus on the shift from inflation to recession.”

SIMON HARVEY, HEAD OF FX ANALYSIS, MONEX EUROPE, LONDON

“Today’s decision follows a report on US inflation for the month of May, which sparked increased speculation on Monday that the Fed would abandon its previous signal of back-to-back 50 basis point hikes in favor of the Fed. ‘A more aggressive decision whether the Fed chose to prime markets with or without disclosure to the Wall Street Journal is largely irrelevant at this point as the market has gone all-in on the prospect. a bigger rate hike.”

“Standing by its original forecast, the Fed should have effectively eased financial conditions in a 50 basis point hike at a time of mounting inflationary pressures. With the announcement largely priced in money market , both for the latest decision and the adjustment in the dot chart, the reaction of the financial markets has been limited.The focus is now completely shifted to President Powell’s comment during the press conference as the markets are trying to gauge the Fed’s sensitivity to new inflation impressions after their latest U-turn and what the FOMC’s appetite is for aggressively taking rates above neutral this year.”

JAKE DOLLARHIDE, GENERAL MANAGER, LONGBOW ASSET MANAGEMENT, TULSA, OKLAHOMA

“The market doesn’t know what it wants. It wants higher interest rates to stave off inflation, but it also realizes that higher interest rates make the cost of doing business more expensive. That’s so really a shit show, it’s not fun right now.”

“I wouldn’t be surprised if they come away with 75 basis points in July and then they sit and wait.”

CHRISTOPHER C. GRISANTI, CHIEF EQUITY STRATEGIST, MAI CAPITAL MANAGEMENT, CLEVELAND, OHIO

“We think the fed funds rate will approach 3.5% by the end of the year, so another 200 basis points of hikes from here. It’s still not the end of the world, c ‘s well below the average federal funds rate of the past 40 years. But what I’d also like to point out is that while this doesn’t necessarily have to end in a recession, it’s getting harder and harder to think that even the 350 basis points will stop the inflation we are seeing right now.”

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN

“The Fed is ready to let the jobless rate rise and risk a recession as collateral damage to bring inflation down. This is not a Volker moment for Powell given the magnitude of the rise, but it is like a Mini-Me version of Volcker with that move.”

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Compiled by the US Finance & Markets Breaking News team

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Mary Cashion

The author Mary Cashion