US Fed Meeting highlights: FOMC keeps interest rates unchanged for 4th consecutive time, Dow falls 200 points

We will now wrap the blog.

Investors have been anticipating a potential rate cut or the beginning of a rate-cutting cycle at the March meeting, but Chair Powell expressed skepticism about that timing on Wednesday afternoon, CNBC reported.

“Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March is the time to do that,” he said. “But that’s to be seen.”

“The Fed’s probably thinking they’re not really in any rush, there’s no need to really rush into cutting rates,” said Subadra Rajappa, head of US rates strategy at Société Générale, a French bank. “That’s why the markets started to question the March rate cut.”

The S&P 500 fell on Wednesday as Alphabet led a sell-off in technology shares. The market gyrated in afternoon trading as investors evaluated the latest Federal Reserve rate decision.

The S&P 500 was down 0.5% with tech shares like Alphabet and AMD the biggest losers. The Nasdaq Composite lost 0.8%. The Dow Jones Industrial Average added 51 points, or 0.1%, aided by rebound in Boeing share following its results.

The central bank may need more signs that inflation is easing before it begins “dialing back the restrictive level” and cutting rates, said Federal Reserve Chair Jerome Powell, reported CNBC.

“The median participant wrote down three rate cuts this year, but I think to get to that place where we feel comfortable starting the process, we need some confirmation that inflation is in fact coming down sustainably to 2%,” he said.

Fed Chair Jerome Powell acknowledged that inflation has been falling in recent months, though not enough to convince the central bank that it can ease back on rates, reported CNBC.

“The lower inflation readings over the second half of last year are welcome, but we will need to see continuing evidence to build confidence that inflation is moving down sustainably to our goal,” Powell said.

The Federal Reserve’s January statement, released earlier this afternoon, indicates that the Federal Open Market Committee seems to be “reasonably satisfied with financial conditions at the moment,” according to Dennis Lockhart, the former president of the Atlanta Federal Reserve.

“The committee probably doesn’t really believe or have a lot of confidence. They can manipulate market interest rates very much so they just want to set the policy and let the markets react. I think their view is that at the moment, they’re clearly still restrictive, but at a satisfactory level,” he told CNBC’s “Power Lunch” on Wednesday.

Federal Reserve Chair Jerome Powell said the US economy has made some good progress, with inflation easing from its highs without signs of increased unemployment. Still, there is work to be done, he said.

“Inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain,” Powell said, CNBC reported. “I want to assure the American people we are fully committed to returning inflation to our 2% goal,”

The Federal Reserve has set the table for rate cuts starting in June, according to David Kelly, chief global strategist for JPMorgan Asset Management, reported CNBC.

“It sounds to me like June, September, December is what they are thinking — three rate cuts this year —provided the economy keeps growing,” he said in an interview with CNBC following the release of the Federal Reserve’s statement.

Stocks fell to their session lows Wednesday after the Federal Reserve kept interest rates unchanged but indicated rate cuts may not be on the horizon just yet.

The S&P 500 was down 0.9%, while the Nasdaq Composite lost 1.4%. The Dow Jones Industrial Average dipped 40 points, or 0.1%, reported CNBC.

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the FOMC statement said.

The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement from FOMC said.

The S&P 500 was down about 0.7%, while the Dow Jones Industrial Average fluctuated near the flatline, up about 17 points. The Nasdaq Composite was the underperformer of the three major averages, down 1.2%.

The 10-year Treasury yield traded at 3.967%, down nine basis points, while the rate on the 2-year note was 4.248%, down 11 basis points

US Federal Reserve leaves rates unchanged, as expected

European stocks closed slightly higher Wednesday as investors digested corporate earnings and awaited the latest monetary policy decision from the U.S. Federal Reserve.

The regional Stoxx 600 provisionally ended up 0.1% for the session, after closing Tuesday at a two-year high. Autos stocks climbed 1.1% while retail stocks fell over 2.1%.

Strong economic data and a resilient labor market will allow the Federal Reserve to proceed with caution on rate cuts, says Gargi Chaudhuri, head of iShares Investment Strategy, Americas.

Her firm is calling for four rate cuts this year, while the market is pricing for nearly six.

“Markets rallied after a surprisingly dovish December FOMC meeting, but stronger-than-expected growth data since then creates little urgency for the Fed to begin cutting in March,” Chaudhuri said, reported CNBC.

Microsoft was down 1.5% even though it delivered stronger profit and revenue than expected. One analyst, Dan Ives of Wedbush Securities, even called the quarterly report “a masterpiece that should be hung in the Louvre.”

Tesla, another member of the group of stocks nicknamed the “Magnificent Seven,” sank 1%. A judge in Delaware ruled a day earlier that its CEO, Elon Musk, is not entitled to the landmark compensation package awarded him by Tesla that’s potentially worth more than $55 billion.

Technology stocks are slumping Wednesday as several of Wall Street’s most influential stocks feel the downside of ultrahigh expectations. The S&P 500 was 0.9% lower in midday trading. The drops for Big Tech sent the Nasdaq composite down a market-leading 1.5%, as of 11:52 a.m. Eastern time. The Dow Jones Industrial Average, which has less of an emphasis on tech, fell 13 points, or less than 0.1%.

Alphabet was one of the heaviest weights on the market, and it fell 6.6% despite reporting stronger profit and revenue for the latest quarter than analysts expected. Underneath the surface, analysts pointed to some concerning trends in how much Google’s parent company is earning from advertising.

The odds of a rate cut in March have dropped to about 63% currently, from about 73% a month ago, according to the CME FedWatch Tool.

In a cautionary sign, layoffs rose in December. And the number of Americans quitting their jobs — a sign of relative confidence in their ability to find a better position — dipped to the lowest level since January 2021.

America’s employers posted 9 million job openings in December, an increase from November and another sign that the US job market remains resilient despite the headwind of higher interest rates.

The number of openings was up from November’s 8.9 million, which itself was revised up in Tuesday’s report from the government. Job openings have gradually but steadily declined since peaking at a record 12 million in March 2022. But they remain at historically high levels: Before 2021, monthly openings had never topped 8 million.

Still, the US economy is outpacing its counterparts overseas. During the October-December quarter, the 20 countries that share the euro currency barely avoided a recession, posting essentially no growth. Still, as in the United States, unemployment is very low in the euro area, and inflation has slowed to a 2.9% annual rate. Though the European Central Bank could cut rates as soon as April, many economists think that might not happen until June.

The stock market is near a record high, and the yield on the influential 10-year Treasury note, at just above 4%, is well below its peak of nearly 5% last fall. Average long-term mortgage rates, which typically track the 10-year yield, have dropped from nearly 8% to about 6.7%.

“The Fed’s probably thinking they’re not really in any rush, there’s no need to really rush into cutting rates,” said Subadra Rajappa, head of US rates strategy at Société Générale, a French bank. “That’s why the markets started to question the March rate cut.”

The Fed is assessing the economy at a time when the intensifying presidential race is pivoting in no small part on voters’ perceptions of President Joe Biden’s economic stewardship. Republicans in Congress have tried to tie Biden to the high inflation that gripped the nation beginning in 2021. But the most recent surveys indicate rising confidence in the economy.

Most Fed watchers think the central bank’s first rate reduction will occur in May or June. Late last year, Wall Street investors had bet that a rate cut in March was a near-certainty. But cautionary comments by a number of Fed officials have dispelled most expectations for a cut that soon.

Tech stocks propelled 2023’s spectacular end-of-year rally, but the bubble may finally be on the verge of deflating. Information technology and communication services are the only two S&P 500 sectors down for the week, having respectively slid 1.6% and 2.9%.

“Magnificent 7 members Alphabet and Apple have respectively lost nearly 7% and 3.8% this week. Other tech titans poised to end the week in the red include Applied Materials (-3.1%), Taiwan Semiconductor (-3.4%), Cisco (-2.9%) and Intel (-2.9%), reported CNBC.

The Federal Reserve will likely move closer Wednesday to cutting its key interest rate after nearly two years of hikes that were intended to fight the worst inflation in decades. Yet it may not provide much of a hint about when — or how fast — it will do so.

Though Fed officials are expected to cut rates within the next few months, they’ll likely signal Wednesday that they expect to wait until they’re confident that inflation, which has tumbled from its peak, is reliably moving to their 2% target. The central bank’s benchmark rate influences the cost of most consumer and business loans, and companies, investors and individuals have been eager for the central bank to ease the cost of borrowing.

The dollar index fell but was on course for its best month since September, and benchmark 10-year US Treasury yields hit a two-week low but were also set for monthly rise.

The two-day meeting of the Federal Open Market Committee (FOMC) concludes later in the day, with the Fed likely to keep interest rates unchanged. Chair Jerome Powell’s news conference at 2:30 p.m. ET will be watched for insight into how soon the Fed will cut interest rates this year.

The odds of a rate cut in March have dropped to about 64% currently, from about 73% a month ago, according to the CME FedWatch Tool.
The press conference is where the markets will start to look for any signs that March is indeed on the table for the Fed’s first rate cut, Ghali added.

Starbucks reported record revenue in its fiscal first quarter but lowered its sales outlook for the rest of the year as spending weakens in China and other markets.

The Seattle coffee giant said Tuesday it now expects revenue to increase between 7% and 10% in its current fiscal year, down from the 10-12% increase it forecast in early November. Global same-store sales — or sales at stores open at least a year — are now expected to rise between 4% and 6%, down from the previous 5-7% range.

Google’s corporate parent returned to double-digit revenue growth during last year’s final quarter, signaling the internet powerhouse has regained its footing even as it grapples with regulatory and competitive threats to its digital empire.

The results announced Tuesday by Alphabet Inc. marked the third consecutive quarter of escalating revenue growth for the Mountain View, California, company, with most of the sales coming through Google’s dominance of search and online advertising. The rebound followed an unprecedented drop in Google’s ad revenue coming out of the pandemic following nearly 20 years of uninterrupted growth.