The Fed on Wednesday kept the official interest rate unchanged in the target range of 5%-5.25%. But it was its projections, the so-called dot-plot, that moved markets, sending them lower as the central bank projected a median rate of 5.6% for this year, meaning two more increases. Powell stated that a decision for July has not been made yet, but markets are now anticipating a hike in July and another one in September. No more cuts are expected this year. The median target level projections for the Federal Funds Rate in 2024 is now 4.6% but Powell affirmed that he is predicting ”a couple of years out for rate cuts”. The Central Bank also raised expectations for economic growth (1% vs 0.4% prev.) and core PCE (3.9% vs 3.6% prev.), lowered them for unemployment (4.1% vs 4.5% prev.) and headline PCE (3.2% vs 3.3% prev.).
Dot Plot
The point of this pause is to assess the real effects of the monetary policy conducted so far, which has “long and variable lags” but the ”risks to inflation are still to the upside”. During the conference Powell stressed the importance of the Labour Market, affirmed that it would be nice to see a ”gradual slowdown in wage growth”, acknowledged ”there will be losses in commercial real estate” and specified the Fed is ”carefully monitoring the banking system” (Bank Stress Tests next week!).
OVERNIGHT – New Zealand fell into recession (-0.1% q/q after -0.7% last quarter), Australian Unemployment fell unexpectedly to 3.6%, Machinery Orders in Japan improved (5.5% m/m) and China cut its 1y Medium Term Lending Facility by 10 bps to 2.65%. Retail sales there cooled down, up 12.7% in May.
- FX – The USDIndex fell before the decision, below 103 (102.64 low), and recovered after (103.23 right now). EUR spiked above 1.08 (1.0821 now), AUD gained almost 0.9% to 0.6834 before giving up all of its gains after the decision. Now trading back to 0.6827. JPY is trading above 141 on the eve of the BOJ decision.
- Stocks – US30 -0.68%, US500 flat, US100 +0.70%. Dax hit a new ATH @ 16336. China and HK up on the rate cut, Nikkei slightly negative (-0.29% now).
- Commodities – USOil – flat at $68.57 despite IEA yesterday. Gold – down, broke $1940, $1937 now. Silver weighs, –1.68% at $23.52.
Today – ECB expected to hike 25 bps, US Jobless Claims, Philadelphia Fed and NY Empire State manufacturing, US Retail sales, BOJ Tonight.
AUDJPY, H1
Biggest FX Mover @ (06:30 GMT) AUDJPY (+1.18%) Going up in a straight line on weak Yen and surprising Australia unemployment. 96.34 now, RSI 77.7, MACD positive.
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Marco Turatti
Market Analyst
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