Instant View-Fed opts for small rate hikes, expects to deliver ‘ongoing increases’

NEW YORK (Reuters) – The Federal Reserve raised its target interest rate by a quarter of a percentage point on Wednesday, yet continued to promise “ongoing increases” in borrowing costs as part of its still unresolved battle against inflation.

The decision lifted the benchmark overnight interest rate to a range between 4.50% and 4.75%, a move widely anticipated by investors and flagged by U.S. central bankers ahead of this weeks two-day policy session.

MARKET REACTION:

STOCKS: U.S. stocks fell after the Fed statement, but the Nasdaq recovered, last flat on the day.BONDS: U.S. Treasury yields trimmed losses after the Fed decision; 10-year last down at 3.48%.FOREX: The U.S. dollar pared losses after the Fed statement.

COMMENTS:

MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO

“This second consecutive lower hike serves as evidence that the Federal Reserve is signaling that significant progress has been made in tamping down inflation and that we have reached a point where rate hikes can be further scaled back. Consumers will likely continue to feel the double-edged effects of both continued inflation and high interest rates for at least a while longer and may seek to shed high interest-debt via personal loans or other lower-interest loan products.”

ELLEN HAZEN, CHIEF MARKET STRATEGIST, F.L.PUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS

“The key thing the Fed is focused on is wages and we are seeing wage inflation continue to ameliorate if you look at both average hourly earnings and the employment cost index which just came out, wages are beginning to soften, but they are not softening enough to get inflation down to that 2% target. They are specifically looking at the non-housing services portion of the PCE and as long as wages are still growing at 5-ish% you are not going to see the Fed back off.”

“One thing that struck me about the statement is that they had a very slightly dovish change in the language where they previously had talked about determining the pace of future increases and now they are talking about determining the extent of future increases. So they did 25, the market is pricing in two more 25s, that is probably right but the question is going to be what is the terminal rate, when do they stop and when do they start to cut again. But what they have said here is this is a little more dovish than it might have been because they are not talking about the pace anymore.”

“This basically takes 50 off the table, not that it was necessarily on, but the language last time could have defended 50 and now that is off the table. They have to see those wages come down.”

RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA

“The Fed threw no curve balls, as they did what was widely expected. The door is cracking open to end rate hikes, but they still have a chance for one more rate hike at the next meeting.”

“The economy is still growing, which is comforting as (the Fed is) not worried of an impending recession.”

“Investors should be happy that we likely have a Fed that is going to end hikes fairly soon as the inflation data continues to show major improvements, which is exactly what the Fed needs to take their foot off the pedal.”

“Yesterday‘s Employment Cost Index was an improvement, and Powell said he needed to see employment costs improve before he stops hiking rates. How close are we now with ending the rate hike cycle, when it’s clear employment costs are slowing？”