Fed just ruled out rate cuts this year: ‘be cautious on equities’

on Feb 1, 2023
  • U.S. Fed raised interest rates by another 25 basis points on Wednesday.
  • Fed Chair Powell said rate cuts are unlikely in the back half of 2023.
  • U.S. Bank’s Lisa Erickson shares what it means for the equities market.

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S&P 500 just added close to a 100 points after the U.S. Federal Reserve announced its eighth consecutive rate hike to fix inflation that still sits at 6.5%.

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Fed raises interest rates by another 25 bps  

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Fed officials favoured a narrower 25 basis points increase this time that pushed the key rate to between 4.5% and 4.75% – a range not seen since October 2007.

The FOMC statement acknowledged that inflation had “eased somewhat” but did not signal a near-term end to rate increases. It, however, confirmed that the committee will consider the lags in the effects of the monetary policy and state of the economy in determining the “extent” of future hikes.

More importantly, Chair Jerome Powell said there was path to bringing inflation all the way down to the 2.0% target without a significant economic decline.

The benchmark index is now up 8.0% year-to-date.

Chair Powell says no rate cuts expected this year

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On the flip side, Fed Chair Powell also revealed in the post-meeting press conference that the central bank wasn’t likely to cut rates in the back half of 2023.  

Consequently, U.S. Bank’s Lisa Erickson reiterated her “cautious” stance on the equities market. Speaking with the folks at Yahoo Finance, she said:

While [earnings] estimate revisions have begun, they still seem relatively high given the amount of decline in activity and lagged effects of policy. So, we’re urging clients to be cautious on equities and overweight higher quality fixed income.

Earlier this week, Cetera’s Gene Goldman also recommended against turning too bullish on stocks (source). Also on Wednesday, the Bureau of Labour Statistics said job openings increased more than expected to 11 million in December.


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