The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25% to 5.50% range. The accompanying policy statement left the door open to another increase, citing still-elevated inflation.
Fed Chair Jerome Powell, in remarks after the rate decision, said the U.S. central bank has not ruled out raising rates in consecutive meetings.
“It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also says it’s possible that we would choose to hold steady at that meeting” if that’s what the data called for, Powell said.
Tom Simons, U.S. economist at Jefferies in New York, said Powell was “extremely vague” on his expectations for the future.
“He spent the remainder of the press conference playing the two-handed economist, picking apart the assumptions implied in the press questions and deftly avoiding being painted into a corner with on-the-fly scenario analysis,” Simons said.
“We continue to expect that this will prove to be the final rate hike of the cycle, but we cannot rule out a September hike without seeing the data.”In his remarks, Powell was hawkish, but some market participants said he wasn’t overly so. Powell said the Fed could raise rates in consecutive meetings if warranted.
The benchmark fed funds futures factored in a 22% chance of a hike in September, compared with 21% late on Tuesday, and just 13.7% a week ago, according to the CME’s FedWatch.
For the November policy meeting, rate futures traders have priced in a 32% chance of a 25-bps hike, down moderately from 34.1% late Tuesday.
ING believes the data flow until September suggested that the Fed will likely pause again.
“By the time of the 20 September FOMC meeting, we will have had two further job and inflation reports, a detailed update on the state of bank lending plus more time for the lagged effects of the already enacted Fed tightening to be felt,” ING analysts wrote in a report led by James Knightley, chief international economist.
“Core inflation looks set to slow further and could be down at around 4% versus the current 4.8% rate given decelerating housing rent inflation, falling used car prices and weakening corporate price intention survey evidence.”
In late afternoon trading, interest-rate sensitive two-year yields fell 4.3 bps to to 4.849%. Benchmark 10-year yields dropped 4.1 bps to 3.870%.
The gap between two-year and 10-year notes, seen as a recession indicator when longer-duration yields are lower than shorter ones, initially widened to -103.10 bps in the aftermath of the Fed decision, but was last at -98.30 bps.