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NEW YORK (Reuters) - The Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point and projected its policy rate would hit a range between 1.75% and 2% by year’s end in a newly aggressive stance against inflation that will push borrowing costs to restrictive levels in 2023.
In a new policy statement marking the end of its full-on battle against the coronavirus pandemic, the U.S. central bank flagged the massive uncertainty the economy faces from the war in Ukraine and the ongoing health crisis, but still said “ongoing increases” in the target federal funds rate “will be appropriate” to curb the highest inflation in 40 years.
STOCKS: The S&P 500 pared strong gains and was last up 0.43%
BONDS: The 10-year U.S. Treasury note yield rose to 1.2440%, and the 2-year yield rose to 1.9405% The 2s/10s yield curve flattened to 24.46 basis points
FOREX: The dollar index rose from a small loss to a 0.07% gain
“It is early days in the hiking program, but we finally have lift off at the Federal Reserve. Despite being behind the likes of the Bank of England this has been a very well telegraphed and managed rate rise, even with the threats of Omicron, China’s regulatory crackdown and now the knock on effects of the war in Ukraine.
“None of these threats, however, are resolved by monetary policy and with the inflation shock reverberating around the system the Fed needs to move back to normalcy, at least to build in some insurance for when easing will once again be required in the future.”
SCOTT LADNER, CHIEF INVESTMENT OFFICER, HORIZON INVESTMENTS, CHARLOTTE, NORTH CAROLINA
“What is driving it down is really the aggressiveness of the Federal Reserve. The one key thing the Fed is forecasting is to push interest rates above neutral and every time interest rates go above neutral, the economy tips into recession sometime after that.”
“This looks like a Fed that is intending on causing recession in order to stamp out the inflation problem and that is as short sighted as calling inflation transitory a year ago.”
“What they’re reacting to isn’t the 25 basis point rate hike that was well telegraphed and fairly well expected, what they’re really reacting to is the new dot plot from the Fed showing that they anticipate also seven rate hikes this year.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH MANAGEMENT, FAIRFIELD, CONNECTICUT
“It was pretty much right in line with what the market expected.”
“What we were seeing heading into this is buy the rumor, and now we are seeing a little bit of sell the news.”
“It’s really going to be a focus on how many interest rate hikes are these Fed (officials) forecasting this year and how fast are they going to roll off the balance sheet.”
Compiled by the U.S. Finance & Markets Breaking News team
