On Wednesday, June 16, the Federal Reserve announced its FOMC monetary policy meeting resolution and released its latest quarterly economic, inflation and unemployment forecasts, as well as a “dot plot” of Fed officials’ expectations for the timing of future interest rate hikes.
The Fed did not raise interest rates at this meeting, keeping interest rates at a historic low of nearly zero, raising inflation expectations this year by a significant 1 percentage point to 3.4%, still calling inflationary pressures temporary, suggesting two rate hikes in 2023, but not mentioning cuts in bond purchases (taper).
In the half hour after the FOMC decision was announced at 2pm EST until Powell’s press conference, the market moved sharply, with U.S. stocks and gold diving short term and the dollar and U.S. bond yields moving higher.
The 10-year U.S. bond yield rose above a total of five hurdles from 1.50% to 1.54%, turning up and surging nearly 5 basis points during the day.
U.S. stocks extended their losses, with the Dow down nearly 370 points or more than 1%, the S&P 500 down nearly 1% and the Nasdaq down 0.7%. The Dow then maintained its nearly 320-point drop, while the S&P 500 and Nasdaq both fell 0.7%.
Gold and silver dived, spot gold fell again and fell more than 1% during the day, forcing $1834, down more than $25 from the FOMC resolution before the announcement, and set a new one-month low. Spot silver also fell 1% at $27.33 per ounce at one point.
Bitcoin narrowed its losses and returned to above $39,000. The U.S. dollar index (DXY) rose directly above the 91 mark, refreshing its one-and-a-half month high since May 6, and extending its intra-day gain to 0.6%.
Some analysts pointed out that the Fed signaled that rate hikes need to be brought forward and more quickly than the market expected, a change in stance that somewhat contradicts the Fed’s insistence that the recent spike in inflation is temporary.
The most notable asset movement during Powell’s press conference, which began at 2:30 p.m. EST, was a collective surge in U.S. bond yields.
The 10-year U.S. bond yield continued its upward march, rising more than 6.5 basis points on the day and topping 1.56%. The spread between the 5- and 30-year U.S. bond yields fell more than 9 basis points to 131.602 basis points, the lowest in more than five months since Jan. 6.
The five-year U.S. bond yield rose more than 11 basis points, up nearly 11.5 basis points from the Fed’s interest rate resolution before it was announced, at 0.8938%. Two-year U.S. bond yields exceeded 0.2% for the first time in a year, up 4.22 basis points during the day.
The Dow maintained a loss of more than 310 points, the S&P 500 index fell slightly to 0.8%, and the Nasdaq fell to nearly 1%.
Spot gold losses narrowed slightly, rising back above $1838. The dollar index stood steady above the 91 handle.
Five minutes before the FOMC resolution, the S&P and Dow losses extended, the Nasdaq once turned up, gold turned up, U.S. bond yields fell narrower:.
The S&P 500 index fell to 0.4%, then held steady at down 0.3%; the Dow fell to 180 points or more than 0.5%, then narrowed to down more than 150 points; the Nasdaq fell significantly higher and once turned up. Spot gold turned up during the day and regained $1860; the dollar index rose slightly and held steady at 90.55, bitcoin also hovered at $39,000; 10-year U.S. bond yields once narrowed to less than 1 basis point, back above 1.49%, and then fell below this mark again.
Earlier at the beginning of the U.S. stock market to midday.
The three major U.S. stock indices collectively opened slightly higher and then quickly turned lower. The S&P 500 index fell 0.3% at midday, having hit a new intraday high on Tuesday and a new closing high on Monday; the Dow fell 112 points or 0.3% at its deepest, with the potential to fall for three consecutive days; the Nasdaq once rose 0.4%, then fell 0.3% at its deepest and forced 14030 points, having also hit a new closing high on Monday. The S&P 500 index has 9 of the 11 major sectors fell, including communication services and financial sector led the decline in the broader market.
The 10-year benchmark U.S. Treasury yield fell 1.7 basis points to a daily low of 1.482%, after falling below 1.43% to a three-month low during Friday’s session. 30-year U.S. bond yields fell 2.8 basis points to a daily low of 2.171%, before returning to above 2.18%, but also not far from the three-month low. The two-year U.S. bond yield dipped 0.6 basis points, pushing down to 1.61%.
The dollar index held steady at 90.54, having touched a one-month high yesterday on the back of the biggest year-over-year gain in the U.S. PPI producer price index in nearly 11 years in May. Analysis says the dollar index has been narrowly ranging this week mainly as the market waits to see what the FOMC decision says about inflation. The Australian dollar, a commodity currency positively correlated with risk sentiment, rose more than 0.2% against the dollar. Bitcoin fell 3.8% and fell below the $39,000 round figure.
Spot gold fell, dropping as deep as 0.3% on the day to a daily low below $1,853, close to the one-month low since May 17 hit on Monday at $1,843.99. Spot silver fell 0.2% at its deepest, with a daily low below $27.59. UBS analysts said that any hawkish signal from the Fed will drive gold prices, reiterating the dovish stance may have little impact on gold prices, with extra attention to “inflation risk” will be mentioned.
Today U.S. Treasury Secretary Yellen in the U.S. Congress Senate Finance Committee hearing, said that in the long run, higher price pressures will not last, the current higher inflation is driven by important temporary factors, most of the long-term inflation outlook indicators are still well anchored, “we continue to monitor inflation data very carefully.”
However, the latest data showed that U.S. import prices rose 11.3% year-over-year in May, the fastest since 2011, adding to concerns about upward pressure on U.S. inflation. High U.S. inflation is even starting to be exported outward, with export prices increasing at a record high year-over-year in May.