(Bloomberg) — Stocks hit fresh all-time highs as the Federal Reserve did little to alter Wall Street’s bets that interest rates will drop at least twice in 2024 — even after the central bank’s more-conservative outlook.
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The S&P 500 topped 5,400 for the first time in its history, with Wednesday marking the 20-month anniversary of the bull market. While Treasury yields did pare their slide after the central bank decision, Fed swaps are still pointing to rate cuts in both November and December. The dollar retreated against all of its developed-world counterparts.
Fed officials penciled in just one rate cut this year and forecast more cuts for 2025, signaling no rush to reduce borrowing costs. “The most-recent inflation readings have been more favorable than earlier in the year, however, and there has been modest further progress toward our inflation objective,” Chair Jerome Powell said.
“This is a nothing-burger Fed meeting,” said David Russell at TradeStation. “They know conditions are improving, but don’t need to rush with rate cuts. The strong economy is letting Jerome Powell wring inflation out of the system without hurting jobs. Goldilocks is emerging. Policymakers don’t want to jinx it.”
A few hours before the Fed decision, data showed the core consumer price index cooled to the slowest pace in more than three years.
In a session marked by strong trading volume, the S&P 500 rose almost 1%. Big tech consolidated its leadership, with Tesla Inc. and Nvidia Corp. rallying at least 3.5%. Gains were also fueled by blowout earnings from Oracle Corp., which soared 13%. Lower bond rates also helped, with 10-year yields down nine basis points to 4.32%.
“Don’t put the cut before the horse,” said Bank of America Corp.’s Michael Gapen. “This Fed will be reactionary and will ease when the inflation data allow.”
Gapen retained his view for the first rate cut in December and a gradual easing cycle that ends with a terminal rate of 3.50-3.75%. Officials on Wednesday voted unanimously to keep the benchmark federal funds rate in a range of 5.25% to 5.5% — a two-decade high first reached in July.
The Fed’s acknowledgement of “modest progress” towards the 2% inflation target likely stems from the disinflationary signals in May’s CPI data, according to Whitney Watson at Goldman Sachs Asset Management.
“The Summary of Economic Projections was hawkish as it implies only one cut — but the statement did acknowledge ‘modest’ progress on inflation,” said Jay Hatfield at Infrastructure Capital Advisors. “The press conference was neutral as this morning’s low inflation print was hard to ignore.”
Individual officials’ views on the best path forward for borrowing costs differed. The Fed’s “dot plot” showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.
“These ‘dot plot’ projections likely don’t account for the latest May inflation data, which were softer than expected and reversed some of the heat we saw in the first quarter,” said Sonu Varghese at Carson Group. “We still think the odds are high for two rate cuts in 2024 if the disinflation process continues, as we expect.”
“On net, while there was a modest surprise in this year’s median dot, we didn’t come away from this afternoon thinking much differently about the Fed,” said Michael Feroli at JPMorgan Chase & Co. “We continue to look for a first ease in November, and after this morning, perhaps see risks tilted a little more toward September than December.”
Powell said the officials welcomed the latest inflation figures, adding that he hopes for more reports like that. He said Wednesday’s figures had helped build their confidence on the trajectory of inflation but not enough to warrant rate cuts at this time.
To Krishna Guha at Evercore, the Fed chair is keeping the door very much open to a September cut — provided that the May downshift is broadly sustained in the next few months.
“Powell’s presser fine-tunes to a 1.5 cut signal — we still see thin baseline of two,” he noted.
“Jay was purposely noncommittal on giving any opinion on the timing of a possible cut,” said Peter Boockvar at The Boock Report. “Whether they cut once or twice after 525 bps of rate increases since March 2022? Who cares? It’s what happens next year and if the cuts are aggressive, it will be because the economy deteriorates notably, more so than if inflation further slows.”
“Chair Powell provided a cautious view around the economic outlook, particularly for inflation and despite the better than expected news that we received on that front earlier today,” said Oscar Munoz and Gennadiy Goldberg at TD Securities. “While on the surface the projections appear to have a hawkish tilt, the details suggest otherwise, in our opinion.”
They remain optimistic that the Fed will first ease rates at its September meeting, as we look for core personal consumption expenditures inflation to gradually moderate by then to a monthly pace that is consistent with a return to the inflation target.
“The Treasury market largely treated the June meeting as a placeholder, with the focus going forward likely to remain on economic data,” they added. “This should keep markets volatile around inflation and labor market data. However, with 10-year rates slipping into a “bullish channel,” we continue to expect them to finish the year at 3.9%,” they added.
Corporate Highlights:
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Broadcom Inc., a chip supplier for Apple Inc. and other big tech companies, rallied in late trading after its latest results and annual forecast topped estimates, lifted by robust demand for artificial intelligence products.
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Virgin Galactic Holdings Inc. shares tumbled after the company’s board of directors agreed to a 1-for-20 reverse stock split aimed at maintaining the stock’s listing on the New York Stock Exchange.
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The GameStop Corp. calls that Keith Gill — known online as “Roaring Kitty” — purported to own traded huge volumes late Wednesday as the firm’s shares dove in the final stretch of trading.
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Caterpillar Inc. hiked its dividend by about 8% and added $20 billion to its share buyback program after seeing strong performance from its division best known for making iconic yellow heavy-duty machinery.
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FedEx Corp. plans to cut as many as 2,000 jobs in Europe, the latest move by the package-delivery giant to streamline its global workforce and rein in costs.
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A second major Southwest Airlines Co. investor has joined the call for a shakeup in the carrier’s board and executive leadership team, upping the pressure for change.
Key events this week:
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Eurozone industrial production, Thursday
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US PPI, initial jobless claims, Thursday
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Tesla annual meeting, Thursday
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New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen, Thursday
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Bank of Japan’s monetary policy decision, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
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US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.8% as of 4 p.m. New York time
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The Nasdaq 100 rose 1.3%
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The Dow Jones Industrial Average was little changed
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The MSCI World Index rose 0.9%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.6% to $1.0806
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The British pound rose 0.4% to $1.2797
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The Japanese yen rose 0.2% to 156.84 per dollar
Cryptocurrencies
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Bitcoin rose 0.3% to $67,515.01
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Ether rose 1.2% to $3,528.95
Bonds
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The yield on 10-year Treasuries declined nine basis points to 4.32%
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Germany’s 10-year yield declined nine basis points to 2.53%
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Britain’s 10-year yield declined 14 basis points to 4.13%
Commodities
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West Texas Intermediate crude rose 0.6% to $78.34 a barrel
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Spot gold rose 0.2% to $2,321.36 an ounce
This story was produced with the assistance of Bloomberg Automation.
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