Stocks rise, dollar pares losses after Fed signals more hikes ahead

By Sinéad Carew

(Reuters) – MSCI’s global equity index closed slightly higher on Wednesday after a volatile afternoon while the dollar cut its losses after the U.S. Federal Reserve paused interest rate hikes as was widely expected but signalled that it could raise rates by another half percentage point by year-end.

The central bank issued new economic projections that suggested borrowing costs were likely to rise by another half of a percentage point by the end of 2023 due to a stronger-than-expected economy and a slower decline in inflation.

The rate-setting Federal Open Market Committee said that “holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy.” It issued its unanimous policy statement at the end of its two-day meeting.

Trading was choppy after the news with the MSCI’s gauge of stocks across the globe falling by as much as 0.34% after the Fed statement but then regaining lost ground while Fed Chair Jerome Powell took questions from reporters. It closed up 0.24%.

“Powell is doing an excellent job walking the monetary tightrope, staying close to the center and being balanced,” said Quincy Krosby, chief global strategist for LPL Financial (NASDAQ:).

“He’s acknowledged that inflation is edging lower and said the skip was “prudent.” Moreover, he stressed that the Fed’s mandate is to restore “price stability,” but that the Fed is data dependent.”

Krosby said it was likely that Powell’s stance that bringing down inflation to the Fed’s 2% trader would not “require weakening the labor market dramatically” reassured investors.

The fell 232.79 points, or 0.68%, to 33,979.33, the gained 3.58 points, or 0.08%, to 4,372.59 and the added 53.16 points, or 0.39%, to 13,626.48. 

Angelo Kourkafas, senior investment strategist at Edward Jones, St Louis said “the resilience of the economy keeps the Fed on high alert rather than letting its guard down too soon.”

He said “the market realizes that the Fed is getting close to the end of the tightening cycle” and added that since the Fed has hiked rates so much already Wednesday’s announcement is “not as hawkish as this might have appeared when they were starting up.”

In Treasuries, benchmark 10-year notes were down 4.5 basis points to 3.794%, from 3.839% late on Tuesday. The 30-year bond was last down 6.4 basis points to yield 3.8768%, from 3.941%. The 2-year note was last was unchanged to yield 4.6964%, from 4.696%.

In currencies, the fell 0.29%, with the euro up 0.38% to $1.0832. The Japanese yen strengthened 0.20% versus the greenback at 139.94 per dollar, while Sterling was last trading at $1.2661, up 0.39% on the day.

In energy, crude oil futures added to losses after the Fed’s news. The commodity had given up earlier gains as traders weighed an unexpected, large build in oil against bullish demand growth forecasts.

U.S. crude recently settled down 1.66% at $68.25 per barrel while settled at $73.20, down 1.47%.