US equities ended their trading session in the red, following a definitive hawkish stance from Fed, even though interest rate was kept unchanged as expected. Fed sent a clear signal that another rate hike is still on the cards this year, and interest rate is going to stay higher for longer. Fed Chair Jerome Powell confirmed in the post meeting press conference, “We’re in a position to proceed carefully in determining the extent of additional policy firming.”
The new batch of economic projections divulged a prevailing sentiment among 12 of 19 Fed officials in favor of one more rate hike within this year. Investors were taken by surprise not by the rate hike anticipation but by the foreseeing of lesser rate cuts in 2024, a strategic shift attributed largely to the resilient labor market.
Furthermore, the projections hinted at a steeper path for interest rates in the years ahead. Median outlook for federal funds rate was adjusted upwards, settling at 5.1% for 2024, from a prior 4.6%, and 3.9% for 2025, up from 3.4%. This suggests that monetary policy will lean on the tighter side stretching into 2026. A 2.9% funds rate is projected for 2026, marking a divergence from the long-run neutral rate, which remains pegged at 2.5%.
More on Fed:
- Fed Review: Upbeat on Growth
- Message from FOMC Meeting: Higher for Longer
- Fed React: Dollar Pares Earlier Losses after Fed’s Attempt of a Hawkish Skip
- Fed stands part, 12 members see one more hike
Reflecting these developments, S&P 500 took a dip, shedding -0.94% or -41.75 points to conclude at 4402.20. In a technical context, S&P 500’s movements stemming from 4607.07 are perceived a correction pattern. D deeper slide is on the cards to 4335.31 or even lower.
However, robust support levels are anticipated around the 38.2% retracement of 3491.58 to 4607.07 at 4180.95. This is expected to limit further losses, at least at first attempt. Meanwhile, a close above 55 D EMA (now at 4438.25) will neutralize the bearish outlook.
