Fed tempers aggressive rate hike expectations

By: Miguel A. Rodriguez

11:55, 05 May 2022

Stock markets rose on Wednesday as the Federal Reserve raised interest rates for the second time in 2022. Chairman Jerome Powell eased fears of more aggressive rate hikes at future meetings

Dow Jones 30 gained 2.6%, the S&P 500 rose 2.8%, and the Nasdaq jumped 3%.

Finally, the doubt was resolved. The Fed’s Chairman, Jerome Powell, was not as "hawkish" as most of the market predicted and leaned towards a more moderate monetary policy tone.


In reality, interest rates will continue to rise, and probably in the next two meetings, 50 bps increases will be decided, as Powell has pointed out. However, the market expected that the Federal Reserve would leave the possibility open of a rise of 75 bps in some of them, something that is ruled out.

They have made it clear that the objective is to reach the level of neutral interest rates of around 2.5%, but the market was betting on something more aggressive. In the end, everything will depend on the evolution of the inflation figures in the coming months. Any sign of a retracement in price levels would be positive by the markets.

The Fed also said that they would start the balance sheet reduction in June, but the pace at which they will do it is not at all aggressive. Bond yields have not risen, as could be expected after a rise of 50 bps but have experienced declines, with the 10-year reaching 2.92%.


As a result, the US Dollar weakened sharply, and the EUR/USD rose a full figure above 1.0600. The market is beginning to think that we are close to the end of the bullish cycle of the US currency. Gold also rose on the back of USD weakness and a decline in Treasury bond yields.


US Indices

And the North American indices rose strongly, bouncing from support levels. S&P500 went up from the 4,140 zone, which is major support and is heading higher with a nearby objective located between the 4,400 and 4,475 zone, where the moving averages of 100 and 200 days sit. The results that North American companies publish continue to be mostly positive, boosting this momentum.


Sources: Bloomberg.com, reuters.com

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