Bond yields rose and stocks dropped for a second day after Federal Reserve officials signaled that the stimulus that has fuelled the recovery from the pandemic will be reduced.
After Fed Chair Jerome Powell downplayed the possibility of an imminent rate hike, stocks closed off their day's lows. The S&P initially tumbled following policymakers disclosing that they anticipate 2 interest rate hikes by the end of 2023. The dollar gained ground against its major counterparts. As the market repriced the timing of rate rises, yields on benchmark 10-year Treasury notes increased from a nearly three-month low, while yields on five- and seven-year notes dropped even further.
Crude oil fell slightly after rising as much as 1.2% in New York, as the strengthening dollar made commodities priced in the currency less appealing.
The central bank kept its benchmark policy rate goal range unchanged at 0% to 0.25%, where it has been since March 2020, and pledged to keep buying assets at a $120 billion monthly pace until “substantial more progress” on jobs and inflation was achieved.
According to the quarterly forecasts, 13 of the 18 officials support at least one rate hike by the end of 2023, compared to seven in March. By the end of the year, eleven officials had seen at least two raises. In addition, seven of them, up from four, are expected to relocate by 2022.
Powell seemed to pour cold water on the market's initial response to the dot plot revision in a press conference following the rate decision announcement, going to great lengths to demonstrate that the central bank isn't really thinking about rate rises right now.