Federal Reserve Board Chairman Jerome Powell departs after speaking during a news conference following the Federal Open Market Committee meeting, at the Federal Reserve in Washington, DC, on June 14, 2023.
Mandel Ngan | AFP | Getty Images
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What you need to know today
Pause and play
The Federal Reserve left interest rates unchanged, as widely expected. But the updated dot plot, or Fed members’ projections of rates in the future, imply two further hikes, bringing rates to 5.6% by the end of this year.
The rally paused too
The S&P 500 finished nearly flat, while the Dow Jones Industrial Average dipped 0.68% and the Nasdaq Composite rose 0.4%. In Europe, markets traded higher Wednesday. The FTSE 100 inched up 0.1% as gross domestic product in the U.K. expanded 0.2% in April, reversing a 0.3% drop in March.
Return to rates reality
Turkish President Recep Tayyip Erdogan said he would accept his newly appointed finance minister’s recommendations on interest rate policies. That could mean a return to raising rates to combat Turkey’s sky-high inflation, which was 39.6% in May. Erdogan, rather infamously, believes high interest rates cause inflation.
The other T-word
France is courting Elon Musk to build a Tesla Gigafactory in the country, Jean-Noel Barrot, France’s digital minister, told CNBC. Musk is a “great inventor,” Barrot said — though Barrot probably doesn’t consider Twitter as one of Musk’s successes. Last month, Barrot threatened to ban Twitter in the EU.
[PRO] Brake, or break
DoubleLine Capital CEO Jeffrey Gundlach warned that the Fed is “going to break something” if it follows through on its expectations to continue raising rates later this year. The U.S. economy is already brittle, Gundlach said, so it makes more sense to hit the brakes on rate hikes.
The bottom line
Don’t see the Fed leaving interest rates unchanged as something positive.
It’s a “hawkish pause,” as so many analysts pointed out, meaning that the Fed might still swoop in with more hikes later this year — as the central bank itself projected. To use more animal imagery, when thinking about the Fed’s decision this meeting, perhaps the bank’s not so much a hawk, but a tiger stalking its prey — it freezes, pauses, before pouncing and killing.
The metaphor works in more ways than one. Prominent investors and economists are warning that the Fed might be overzealous in its tightening campaign, and will render lifeless an economy that’s already fading. “There are so many indicators that are deeply in recessionary territory,” Gundlach said. Indeed, Wharton professor Jeremy Siegel’s “worried about whether [the Fed] stop[s] soon enough.”
Fed Chair Jerome Powell, as if aware of the worries, did soothe nerves at his press conference. He noted that “the conditions that we need to see in place to get inflation down are coming into place.” And if inflation does indeed fall further, Powell suggested the Fed might deviate from its projections and keep rates steady. July’s Federal Open Market Committee “will be a live meeting,” because “a decision hasn’t been made,” Powell said.
For investors feeling like vulnerable prey, then, there’s a chance the Fed might decide to walk away in the end. Markets may yet live.
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