Fed Leaves Rates Unchanged But Signals More Interest Rate Hikes Needed To Fight Inflation

Key Insights

• Fed left the interest rate unchanged at 500 – 525 bps. 
• Fed expects that the federal funds rate would climb to 5.6% in 2023.
• Major indices are under strong pressure, while the U.S. dollar gains ground against a broad basket of currencies. 

On June 14, the Fed released its Interest Rate Decision. The central bank decided to maintain the target range for the federal funds rate at 500 – 525 bps, in line with the analyst consensus.

The Fed has also released its interest rate projections, which have changed materially compared to the March release. The Fed expects that U.S. GDP would grow by 1.0% in 2023, compared to the previous projection of +0.4%. Unemployment Rate is expected to be at 4.1% this year. Core PCE inflation is projected at 3.9%, compared to the previous expectation of 3.6%.

The real shock is the change of the federal funds rate projection. Back in March, Fed expected that federal funds rate would be at 5.1%, and now it believes that it would reach 5.6%.

U.S. Dollar Index climbed back above the 103.10 level as Fed’ projections showed that the central bank would raise rates in the second half of the year.

Gold moved below the $1950 level as hawkish Fed and stronger dollar are bearish for gold markets.

SP500 pulled back towards 4350 as hawkish Fed is bearish for stocks. NASDAQ declined towards the 14,800 level as traders rushed to take profits off the table in the yield-sensitive tech stocks.

For a look at all of today’s economic events, check out our economic calendar.