The Core Message of the Federal Reserve: More Rate Hikes, Elevated for Longer

Federal Reserve’s Dot Plot Reveals Anticipated Rate Hikes in 2023

As anticipated the Federal Reserve announced that the “committee decided to maintain the target range for the federal funds rate at 5 to 5 ¼%”. However, the core message as expressed in today’s statement and press conference by Chairman Powell was that its monetary policy will remain restrictive, hawkish, and most likely include two more rate hikes before the end of the year.

“It will be appropriate to cut rates at such time as inflation is coming down really significantly. And again, we’re talking about a couple of years out…As anyone can see, not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate.”

A significant component of today’s message was that the purpose of maintaining (i.e., not raising rates) the Fed’s benchmark rate was not to signal an end to rate hikes but rather to give Federal Reserve members time to “assess additional information and implications for its monetary policy”.

Four times a year the Fed releases a summary of participants’ projections through the SEP (Summary of Economic Projections). According to the Fed, this document contains “participants’ projections for GDP growth, the unemployment rate, inflation, and the appropriate policy interest rate”. The projections from all 18 Federal Reserve officials are expressed as individual votes and placed on the FOMC dot plot.

The dot plot released today indicates that 9 of the 18 participants are projecting Fed funds rates to be at 5.625%, two at 5.875%, and one at 6.125% by the end of 2023. The remaining six votes project rates at 5 ½% or 5% by the end of the year.

Impact on Stocks and Precious Metals

Stock indexes closed mixed with the S&P 500 gaining 0.1%, the Dow Jones industrial average falling 0.7%, and the NASDAQ composite rising 0.4%.

As of 5:31 PM EDT, Gold futures basis the most active August contract is trading lower by $2.90 or 0.15% and fixed at $1955.70. Silver futures basis the most active July contract gained $0.19 or 0.79% and is currently fixed at $24.01.

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Wishing you as always good trading,

Gary S. Wagner