The Fed’s large rate increase wasn’t a problem for the market.
Jim Watson/AFP via Getty Images
The Federal Reserve raised rates by half a point—the biggest single-meeting increase in 20 years. Short-dated Treasuries are rallying anyway.
Fed Chair Jerome Powell’s comments in his 2:30 press conference sent the 2-year Treasury yield sharply lower, down 17 basis points or hundredths of a percentage point. That was the 2-year yield’s biggest single-session decline since March 2020. The 10-year yield fell as well, down 5 basis points to 2.9%.
While Powell said that additional half-point rate increases will “be on the table at the next couple of meetings,” he played down the likelihood of a 75-basis-point increase.
He also pledged to fight inflation, citing strength in wage growth and the labor market. Officials are “strongly committed to restoring price stability,” he said. Powell also said that additional half-point rate increases will be “on the table at the next couple of meetings.” The Nasdaq Composite was up 2.3% after initially turning negative, while the S&P 500 has risen 2.2%, and the Dow Jones Industrial Average was up 700.24 points, or 2.1%.
A half-point hike was fully priced into markets where traders make derivatives bets on future Fed policy. Traders are betting on another half-point hike in June, and that the effective fed-funds rate will rise to 2.9% by the end of this year.
The Federal Open Market Committee also announced a smooth path to wind down its $8.4 trillion balance sheet. It will allow $30 billion in Treasuries and $17.5 billion in mortgage-backed securities on its balance sheet to mature over the next three months, and then $60 billion and $35 billion a month after that, respectively.
Write to Alexandra Scaggs at [email protected]
