FOMC interest rate decision: ‘there’ll be pressure on equities in near term’

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Written on Jun 14, 2023

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U.S. Fed decided against raising rates further on Wednesday.
The central bank says two more hikes are likely this year.
BNY's Jolly shares his view on the benchmark S&P 500 index.

S&P 500 is trending down at writing even though the U.S. Federal Reserve left its key rate unchanged in the range of 5.0% to 5.25%.

Why are stock responding negatively?

Stocks are paring back because the central bank said it will likely raise rates two more times this year.

Over the next six weeks, though, it wants to pause and analyse the impact of the ten consecutive rate hikes it has delivered over the past fifteen months.

For the year, the benchmark index is still up close to 14% but Jake Jolly – Head of Investment Analysis at BNY Mellon is not convinced that it’s sustainable.

We’re very sceptical that this is a sustainable new bull market rally. We think probability of recession is higher than soft landing. So, you need to pick your spots and not blindly buy the index.

S&P 500 could visit the sub 4,000 level again

The FOMC statement acknowledged that economic activity continued to expand at a modest pace in Q1.

Still, BNY’s Jolly sees a recession ahead, in which case, he said on CNBC’s “Squawk Box”, the equities market could slide all the way back to under 4,000 level.

The reason for that is it’s a very narrow market rally. Financials are lagging. When we look at equities, the macro-outlook, we think there will be pressure on equities in the near term.

The Federal Open Market Committee now expects the funds rate to end this year at 5.6% – ended next year at 4.6% and 2025 at 3.4%. That implies the central bank will begin cutting rates next year.