Reactions after Fed hikes rates by another 75 basis points

The Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday in an effort to cool the most intense breakout of inflation since the 1980s, with "ongoing increases" in borrowing costs still ahead despite evidence of a slowing economy.

The rate-setting Federal Open Market Committee lifted the policy rate to a range of between 2.25% and 2.50% in a unanimous vote. Coming on top of a 75-basis-point hike last month, and smaller moves in May and March, the Fed has raised its policy rate by a total of 225 basis points this year to a level now that most Fed officials feel has a neutral economic impact, effectively marking the end of pandemic-era monetary stimulus. 

At a press conference after the meeting Fed Chair Jerome Powell said markets have been orderly given how fast the Fed has moved to tighten. "There's been some volatility but that's only to be expected."

He also said that he did not believe the economy was in recession, but that officials believe it needs to see below-potential growth to create slack and lower inflation.

MARKET REACTION:

STOCKS: The S&P 500 about doubled gains after Powell spoke and was up 2.6% going in late trade

BONDS: The 10-year US Treasury note yield rose 2.7867%; The yield on the two-year fell to 2.9776% FOREX: The dollar briefly extended losses to 0.6%

COMMENTS:

RICHARD FLYNN, UK MANAGING DIRECTOR AT CHARLES SCHWAB

"Today's announcement underlines that the Fed is focused squarely on bringing down inflation. More rate hikes are likely in the second half of the year, and it's worth remembering that in addition to rate hikes, the Fed is also tightening policy by allowing its balance sheet to shrink. In other words, Treasury securities held by the Fed are being allowed to mature without the Fed reinvesting the proceeds – a strategy called quantitative tightening."

"The Fed's aggressive tightening risks tipping the economy into recession. GDP growth was negative in the first quarter, and likely weak in the second quarter. Leading indicators of growth, such as housing activity, new business orders, and consumer spending have all turned lower in the past few months. The outcome of running a tight monetary policy in a slowing-growth environment is likely to be a further flattening or inversion of the yield curve, the underperformance of riskier segments of the bond market, and a stronger dollar. As the tug-of-war between inflation and recession fears plays out in the second half of the year, we expect to see highly volatile markets."

SALMAN AHMED, GLOBAL HEAD OF MACRO, FIDELITY INTERNATIONAL, LONDON

"The continued focus on inflation and labour market strength was striking in the press conference comments as the two main drivers behind the pace of hiking. We think a significant slowdown is already in the pipeline and will start to show in hard data in the coming weeks and months."

"However, continued strength in the labour market - with only very tentative signs of some easing in demand and supply pressures - and the Fed's focus on lagging hard data means another 75bp hike is possible at the next meeting. The risk here is that the Fed tightens policy too far too quickly, making a hard landing inevitable."

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC

"Surprised to see the stock market rally on this news."

"It makes sense that longer term bond yields would be going down, given how committed the Fed appears to be to raising rates until inflation is back under control – and in doing so, significantly increasing the odds that the economy will fall into a recession."

MARVIN LOH, SENIOR GLOBAL MARKET STRATEGIST, STATE STREET, BOSTON

"You certainly can view the policy statement as hawkish but it is pretty consistent with what they have been saying for the last couple of meetings – they are going to continue to hike - estimates had them going into restrictive territory, they are at neutral now and they continue to think they are going to need to go into restrictive territory. Theoretically, the dollar should be stronger in an environment where it is hawkish but it was as expected and we have had a lot of movement in the dollar so far this month. It is as expected and we are all just going to have to wait to see what Powell says."

"Certainly equities have been choppy but generally higher and that is around the view that the tightening cycle might not be as aggressive as initially thought. We've had dollar strength, we've had a more inverted curve, for the most part you've got mixed signals but just a lot of wide ranges that are trading around that I would say things are just in those ranges, if you will. I don't expect the Fed to be able to actually dovishly pivot at this point. After the last CPI, after the last employment report – it is still hot. Certainly we've got data that is starting to moderate and in certain instances like the housing market showed that it is ready to move a bit more aggressively, but they kept the statement around being committed to getting inflation to 2% so to me I keep that in the back of my mind as being the most important thing they are looking at right now."

MICHAEL PEARCE, SENIOR US ECONOMIST, CAPITAL ECONOMICS, NEW YORK

"The Fed's decision to raise interest rates by a further 75bp to 2.25%-2.50% takes them close to their 'neutral' level. With inflation set to fall from here and further signs of economic weakness, we suspect officials will be more cautious raising rates from here, shifting to a smaller 50bp move in September."

BRIAN COULTON, CHIEF ECONOMIST, FITCH RATINGS

"The Fed's statement acknowledged the recent softening in activity data but this is given short-shrift in the presence of what is still a very robust labor market and unrelenting inflation pressures. Despite this being another outsize rate increase of 75 bps, the Fed has still only raised interest rates back into line with its own estimates of the long-run neutral rate. Given where core inflation and the unemployment rate currently stand this underscores that monetary policy adjustment still has quite a long way to go. Market expectations that the Fed may be cutting rates again next year look premature."

JACK ABLIN, CHIEF INVESTMENT OFFICER AND FOUNDING PARTNER, CRESSET CAPITAL, CHICAGO

"This was widely expected and encouraging that it was a unanimous decision. This does represent the most aggressive series of fed moves since Volcker."

"Anything other than the outcome that told us would have been a negative surprise. Too little would've undermined confidence in the Fed and too much would have undermined confidence in the economy. It was well telegraphed and properly balanced against expectations."

"They're still highly attentive to inflation risks. It should underscore their single-minded focus on inflation."