The SPDR S&P 500 ETF Trust TO SPY traded higher in a volatile session on Wednesday after the Federal Reserve’s biggest interest rate hike since 1994.
The Federal Open Market Committee chose to raise federal funds rates by 0.75% on Wednesday to a new target range of between 1.5% and 1.75%, and the Fed Chairman Jerome Powell said another 0.75% rate hike was on the table for the Fed’s next meeting in July.
Related Link: Federal Reserve Raises Interest Rates 0.75%, Raises Inflation Estimates: What Investors Need to Know
“Looking ahead to today, an increase of 50 basis points or 75 basis points looks very likely at our next meeting,” Powell said at his post-meeting press conference on Wednesday.
“We expect the ongoing rate increases to be appropriate.”
Powell said the Fed will continue to monitor economic data and adjust its monetary policy actions accordingly.
“Obviously today’s 75 basis point increase is unusually large, and I don’t expect moves of this magnitude to be common,” Powell said.
Updated projections from the Fed’s dot chart indicate that members see the fed funds rate reaching 3.4% by the end of 2022 and continuing to rise to 3.8% in 2023.
Voice from the street: Charlie Ripleysenior investment strategist for Allianz Investment Management, said the Fed’s previously planned approach of a series of 0.5% rate hikes was simply not enough to allay inflation fears.
“Recent inflation data is moving in the opposite direction to the Fed forecast and the reality is that the Fed will have to do more to pour cold water on this scorching inflation environment,” Ripley said.
John LynchChief Investment Officer of Comerica Wealth Management, said investors can expect further weakness in the S&P 500.
“We believe that bonds at current levels have priced these [recession] risks, but equities are likely to test new lows. We are waiting for the S&P 500 to finally find support in the 3,500 range,” Lynch said.
The Last Word: Jeffrey Roachchief economist at LPL Financial, said the Fed is powerless to deal with the continued supply chain disruptions that are contributing to inflation.
“In addition to its growing list of issues, the Federal Reserve has asserted its position that supply chain disruptions are adding upward pressure on inflation and we know that’s a thorn in their side. “, said Roach.