The Federal Reserve on Wednesday, September 20, 2023 chose to retain rates at their current range of 5.25%-5.5%, which is the highest in 22 years. As part of a concerted effort to lower inflation, the Fed has raised rates 11 times since March 2022, with the last hike occurring in July 2023. Let’s take a look at how the markets responded.
Higher Rates for Longer
While the Fed retained its rate projection for 2023 at 5.5%-5.75%, implying there could be another rate hike later this year, it also projects that rates could remain above 5% through the end of 2024. This suggests that interest rates will stay elevated for a longer duration than previously expected. The central bank affirmed that future rate hikes would depend on the impact of previous hikes on the economy. The Fed believes it has covered a lot of ground, and the full impact of the tightening measures is yet to be felt.
Lower Finish for U.S. Stocks and Oil
On Wednesday, U.S. stocks recorded their lowest closing levels for September, following the Fed’s decision to keep rates higher for longer. The S&P 500 fell by 41.70 points or 0.9%, the Nasdaq Composite shed 209.06 points, or 1.5%, while the Dow was down by 76.98 points or 0.2%. In addition, oil prices dropped by 1% from previous highs, driven by concerns that energy demand would be limited by a softening economy.
Rise in Short-Term Treasury Yields and the U.S. Dollar
Yields on 2-year Treasury yields rose to their highest levels since 2006, while the U.S. dollar index edged 0.09% higher. Last week witnessed the index rise for the ninth consecutive week, marking the longest winning streak in close to a decade.
The Federal Reserve has opted to maintain the current rates, with the possibility of another hike in 2023. Investors and analysts will closely monitor economic indicators, and keep an equally close watch on the Fed’s next move at the November policy meeting.