Fed Raises Rates and Expects Further Increases

2022 marked a dismal year for the stock market in general, as surging inflation and persistent rate hikes prevailed as the most predominant factors. With the S&P 500 losing 19.44% and the Dow Jones Industrial Average (DJIA) losing approximately 8.78% in 2022, market participants would have been reasonably pleased to see the stock market “off to a surprisingly solid start to the year” with the S&P 500 gaining over 6% in the first month of 2023. Heading into the second month of 2023, market participants turn their attention to the first FOMC meeting of the new year, with Federal Reserve Chair Jerome Powell remaining hawkish in the latest interest rate announcement, raising rates by 25 basis points and providing a little indication that the FED is “nearing the end of [its] hiking cycle”, stating that “inflation has eased somewhat but remains elevated”.

Despite annual US CPI declining for the sixth consecutive month in December to 6.5%, the FED has maintained its restrictive stance, but the latest 25 basis point rate hike comes in as the lowest hike since March of 2022. Seeing that throughout 2022, the FED passed four 75 basis point rate hikes, market participants will be reasonably pleased to see easing rate hikes. Still, FED Chairman, Jerome Powell, warned that “we will need substantially more evidence to be confident that inflation is on a sustained downward path”. Despite the little indication that the FED is nearing the end of its restrictive stance, stocks rebounded somewhat as Powell acknowledged that the disinflationary process was well underway, with the S&P 500 Index closing 1.05% up. The DJIA was 0.02% up at market close on Wednesday, 1st of February. Against the backdrop of expected future rate hikes and an ongoing restrictive stance, the dollar fell to a nine-month low, with the Euro reaching USD1.10020, the highest level since April of 2022.

Sources: CNBC, Reuters, Yahoo Finance, Forbes 

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