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US stocks jumped higher to break a five-day losing streak following the release of the Federal Reserve’s latest interest rate decision. Today, the central bank hiked the interest rate by 75 basis points, the largest increase since 1994. Moreover, the Federal Reserve suggested a similar move could take place next month as well. In addition to the interest rate decision, Federal Reserve Chair Jerome Powell spoke in a press conference.
Treasury yields held lower as the benchmark 10-year Treasury yield pulled back slightly from 3.5% (the highest level in over a decade) to 3.3%. The two-year yield, which is more sensitive to changes in monetary policy, also retreated from 3.43% (the highest level in fifteen years) to 3.2%. The price of oil also retreated slightly from $122 to $115 per barrel.
After the release of the consumer and producer price indexes, which showed prices rise 8.6% and 10.8% respectively, the market increasingly priced in the possibility that the Fed would be forced to raise the interest rate by 75 basis points. Today, the Fed opted to raise the interest rate by 0.75%, following a 0.50% increase in May. During a press conference Wednesday afternoon, Fed Chair Jerome Powell also said a 50 or 75 basis point rate hike “seems most likely” for the Fed’s next meeting in July. Doing so implies an even larger interest rate hike of a full percentage point remains unlikely at this point.
The Fed also increased its inflation forecast for the current year. As it stands, members of the Fed see core personal consumption expenditures (PCE), the Fed’s preferred gauge for inflation, rising by 4.3% in 2022. This is a revision higher from the 4.1% estimated in March 2022. For 2023, the Fed sees core PCE rising by 2.7% before slowing to 2.3% in 2024.
At the same time however, the Fed’s estimates for gross domestic product (GDP) and employment soured this month compared to March, the last time the Fed released a summary of economic projections. The Fed now sees GDP rising 1.7% in 2022, compared to 2.8% expected in March. For 2023,the Fed estimated GDP will once again rise 1.7% before slightly rising to 1.95 in 2024.
In a press conference following the Fed’s decision, Chair Jerome Powell highlighted the risk of over-tightening and acknowledged the delicate balancing act the Fed was performing, noting “There’s always a risk of going too far or going not far enough” while adding failing to restore price stability would be “the worst mistake we could make.
However some pundits from Wall Street are sounding the bell that the Fed may be acting too aggressively given the economy has started showing some signs of softening. A new report just Wednesday morning showed U.S. retail sales unexpectedly declined in May, as rising gas prices prompted consumers to pull back spending in other areas.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said “Our objection to this more aggressive action is that it is unnecessary, because the forces which have driven the recent inflation numbers are already fading. Slower wage gains, along with the rollover in the housing market, will depress rent growth, while airline fares are likely to fall over the summer in the wake of falling jet fuel prices, and vehicle prices will drop as inventories rise.”
- Shares of Boeing (BA) rocketed higher after the company said it delivered 35 aircrafts in May, more than doubling last year’s tally of 17. Most deliveries were for the 737 Max Jet. Separately, the Seattle Times cited a Federal Aviation Administration official saying Boeing may be able to resume 787 Dreamliner deliveries soon.
- Shares of cosmetic company Revlon sharply rose for a second straight day, gaining 17% intraday to build on Tuesday’s nearly 60% gain. The stock posted its biggest one-day decline on record last week, falling more than 50% in a single day, after the cosmetics company was reportedly preparing to file for Chapter 11 bankruptcy.
- Baidu (BIDU) shares rose after Reuters reported that the company was in talks to sell the majority of its stake on streaming service iQiyi in a deal that could value the firm around $7 billion.
- Top executives of General Motors Co and Ford Motor Co said on Wednesday U.S. consumer demand for cars and trucks remains strong, despite rising interest rates and record high gas prices.
- A new bill in the House seeks to revoke federally authorized “no-fly zones” over Disney theme parks in the United States. Rep. Troy Nehls (R-Texas) introduced the bill on Monday with six co-sponsors.
- Apple (AAPL) signed a 10-year deal to secure streaming rights to every Major League Soccer (MLS) match starting in 2023. Apple said that “a broad selection” of matches will also be offered at no additional cost to Apple TV+ subscribers, with a limited number of matches offered free.
- Meta Platforms won its appeal on Tuesday against Britain blocking its 2020 acquisition of GIFs supplier Giphy on one ground, the country’s Competition Appeal Tribunal (CAT) ruled.
- Ford Motors (F) recalls 49,000 Mustang Mach-E electric vehicles because a part could overheat and result in a loss of driving power.
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