Here’s what Wall Street is saying about the Fed’s rate hike

(Bloomberg) — For investors trying to gauge the levels of hawks at the Federal Reserve, Wednesday was an example of words carrying more weight than actions.

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As part of the interest rate decision, Fed officials predicted interest rates will rise at least another half a percentage point next year. That was enough to send stocks lower and briefly raise Treasury yields — moves the Fed itself might welcome.

Since the central bank’s last policy decision on Nov. 2, the S&P 500 was up nearly 7% through Tuesday, marking its best intra-meeting performance since June 2020. A U.S. Financial Conditions Index, tracked by Goldman Sachs Group Inc. , fell 0.8% for the biggest easing between Fed meetings since August 2009.

“Lower growth forecasts, but still more increases. That’s not a great combination for markets,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “The bigger uncertainty for the markets right now is growth, not the Fed.”

Chairman Jerome Powell’s remarks at the press conference after the interest rate decision initially caused a gloomy mood in the market.

“He doesn’t sound like the lucky Brookings Powell,” said Dennis DeBusschere, founder of 22V Research. “More like sad Jackson Hole Powell.”

But some investors took heart when Powell said the policy is now settling in and will soon be “sufficiently restrictive.”

Here’s what other analysts said:

Steve Sosnick, Chief Strategist at Interactive Brokers:

“The red-outlined statement was noteworthy because of the final redlines — just the rate itself and a small change in the effect of global concerns on inflation. The higher point plot and essentially unchanged statement is a pushback against the market expectation of a peak, pause, and pivot in 2023.”

Zachary Hill, Head of Portfolio Management at Horizon Investments, ahead of the press conference:

“At first glance, the 2pm release screams hawkish, including the language around walking walks in the statement and the spread of the 23 dots. But the SEP also increased the number of cuts in 2024 to 4, which is close enough to the market for the bulls to validate pricing of a soft landing.”

Oscar Munoz, US macro strategist at TD Securities, on Powell’s comments:

“It matches what the dot graph is telling you now. He is not downplaying the points as he has in the recent past. That in itself is hawkish.”

Jay Hatfield, founder and CEO of Infrastructure Capital Advisors:

“The main driver behind pre-press stock and bond prices is the dot chart which came in about 25 basis points higher than what was priced in Fed Funds futures. We believe that the dot chart increase was well signaled, so the impact on the bond and equity markets is very small.”

Seema Shah, chief global strategist at Principal Asset Management:

“The Fed remains coy about the possibility of a recession, but as most Fed officials consider the risks of a downside tilt, it’s fair to say they’re far more concerned about the economic outlook than they’re willing to admit to give. This should be the death knell for the most recent bear market rally. Policy rates have risen 425 basis points this year alone, have yet to rise and will not fall next year – and all this information needs to be processed before the inevitable economic recession sets in.”

Scott Minerd, Guggenheim Partners Global CIO, on Bloomberg Television:

“The one piece of historical data I can hang my hat on is that the Fed has been consistently wrong in its projections.”

Gregory Faranello, Head of US Price Trading and Strategy for AmeriVet Securities:

“Markets are poised to challenge the Fed here” with 2-year rates well below the Fed’s target of a 5% policy rate.

–With help from Katie Greifeld, Emily Graffeo, and Michael MacKenzie.

(Updates with Powell comments from the press conference)

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