Full recap of the Fed’s rate hike and Powell’s comments on the outlook for future increases

Fed Chair Jerome Powell said that the central bank will not count on the lagged impacts of shelter costs in inflation metrics when determining its policy moves.

“I think that shelter inflation is going to remain high for some time. We’re looking for it to come down, but it’s not exactly clear when that will happen. It may take some time. Hope for the best, plan for the worst,” Powell said.

Shelter costs, especially rent, has become a key source of inflation in recent months and oil and other commodity prices come down. Because of how the metric is calculated, rising rents show up with a lag in the official inflation data.

— Jesse Pound

As the Federal Reserve vows to continue raising interest rates to tamp down on inflation, investors should brace for additional hikes of 75 basis points in the future, said Bill Zox, portfolio manager at Brandywine Global.

Projections from the central bank’s meeting indicated participants expect to increase rates by at least 1.25 percentage points in the two remaining meetings this year.

“I believe 75 is the new 25 until something breaks, and nothing has broken yet,” Zox said. “The Fed is not anywhere close to a pause or a pivot. They are laser-focused on breaking inflation. A key question is what else might they break.”

— Michelle Fox

Fed Chair Jerome Powell said the inflation level hasn’t fallen as much as the central bank had expected it would by this point, in the press conference Wednesday following the two-day policy meeting.

“Our expectation has been we would begin to see inflation come down, largely because of supply side healing,” he said. “We haven’t. We have seen some supply side healing but inflation has not really come down.”

He said that core PCE inflation, “on a 3- 6- and 12-month trailing annualized basis,” is now at 4.8%, 4.5%, and 4.8%, respectively.

“That’s a pretty good summary of where we are with inflation and that’s not where we wanted to be,” Powell said. “We need to continue, and we did today do another large increase as we approach the level we think we need to get to. We’re still discovering what that level is.”

— Tanaya Macheel

Stocks rose as Federal Reserve Chair Jerome Powell pledged to boost rates to slow down inflation.

The central bank hiked interest rates by 75 basis points for a third consecutive time. The major averages initially slipped, but they recovered during Powell’s question-and-answer session as he reiterated his tough stance on fighting inflation.

The Dow Jones Industrial Average leapt more than 100 points. The Nasdaq gained 0.9%, and the S&P 500 added 0.6% around 3:04 p.m. ET.

­-Darla Mercado

The Federal Reserve has always understood that it may be difficult to manage a soft landing while raising interest rates enough to tame high inflation.

“No one knows whether this process will lead to a recession or if so how significant that recession would be,” Chair Jerome Powell said Wednesday. “That’s going to depend on how quickly wage and price inflation pressures come down, whether expectations remain anchored and also if we get more labor supply.”

He added that the chances of a soft landing will diminish if policy needs to get more restrictive for the Fed to reach its goal of 2% inflation. However, high inflation would inflict greater pain long term, he said.

—Carmen Reinicke

With the Federal Reserve signaling that it will push its benchmark well above 4%, including potentially another large rate hike this year, the central bank is increasing risks for investors and the economy, according to CFRA chief investment strategist Sam Stovall.

“With the FOMC now setting a ‘higher for longer’ interest rate policy, the pace of the dance has picked up, increasing the risk that both spin out of control. The Fed increased its year-end rate to 4.4% from the 3.4% expected after the June meeting,” Stovall said.

— Jesse Pound

Federal Reserve Chair Jerome Powell said Wednesday his views haven’t wavered since his market-jolting speech from Jackson Hole a month ago.

“My main message has not changed since Jackson Hole,” Powell said. “The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.”

He added that so far there’s only modest evidence that the labor market is cooling off, citing a slight decline in job openings, that quits are off their all-time highs and that payroll gains have moderated but only by a little bit.

The central bank will need to bring the funds rate to a “restrictive level” and keep it there “for some time.” To do that, it’ll be looking for three things: a continuation of growth running below trend, movements in labor market showing a return to better balance between supply and demand, and “clear evidence” that inflation is moving back down to 2%.

— Tanaya Macheel

The Federal Reserve is still committed to using its tools to bring high inflation back inline with its target of 2% and keep long-term expectations steady, but that may take longer than expected and hurt the labor market.

“Reducing inflation is likely to require a sustained period of below trend growth,” Federal Reserve Chair Jerome Powell said in Wednesday’s press conference. “And, it will very likely [mean] some softening of labor market conditions.”

He also hinted that a hit on the labor market may be worth it over the long term, and that the central bank will stay the course to get to its goal.

“Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the long run,” Powell said. “We will keep at it until we’re confident the job is done.”

—Carmen Reinicke

Harsher interest rate increases are likely in store for the remainder of the year, as the Federal Reserve has set its sights on a target fed funds rate of 4.4% by the end of 2022, according to Bank of America’s Mark Cabana.

He noted that this target rate suggests another 75 basis point increase is possible in November and a 50 basis point hike could be in store for December.

Cabana noted the market’s expectations for inflation are dropping and the fed funds have no longer priced in a rate cut for next year.

He added that the 30-year bond yield was dropping, while the short end like the 2-year was rising rapidly. “That just suggests the Fed will be credible in their fight against inflation,” he said. The 10-year yield hit a high of 3.64% but fell back sharply to 3.54%. The longer duration yields reflect concerns about the economy.

–Patti Domm, Darla Mercado

The Fed’s dot plot shows that the central bankers are considering raising the Fed funds rate to as high as 4.4% by the end of this year. That may be a more aggressive pace than investors expected.

Because there are only two meetings left in 2022, that would imply one of those events would deliver another 0.75 percentage point hike. Many had expected the Fed to reduce the size of its hikes going forward.

— Jesse Pound

The yield on the 2-year Treasury – the instrument most sensitive to the Federal Reserve’s interest rate policy – leapt to a fresh high of 4.121%. It’s the highest level since October 2007.

­-Darla Mercado

The Fed’s interest rate projections caught some traders by surprise, in that they were much more hawkish for longer than many in the market expected.

Prior to the announcement, fed funds futures were pricing a target rate of 4.51 for fed funds after the March 2023 meeting. The Fed’s so-called “dot plot” released Wednesday shows a peak 4.6% in 2023.

“It’s really hawkish,” said John Briggs of NatWest Markets. He said the median rates are much higher than expected. “Basically they’re saying it’s front loaded but they are staying restrictive all the way through 2025.” In 2025, the fed funds rate median target is 2.9%.

“They’re basically saying rates have to go higher and faster and even if we have cuts in ’24 and ’25, they’re still going to stay restrictive into 2025. You don’t have them getting back to neutral until 2025. It’s pretty hawkish. It’s three years of tight policy.” The median fed funds forecast was still 3.9% for 2024.

— Patti Domm

The Federal Reserve’s updated statement shows that the central bank sees the U.S. economy as strong, which could indicate that the Fed is comfortable raising rates significantly from here.

The new statement said that economic indicators “point to modest growth in spending and production.” That is a change from July’s statement, which said “recent indicators of spending and production have softened.”

Check out the full changes here.

— Jesse Pound

The Federal Reserve’s “dot plot,” its forecast for the path of rate hikes, shows that the central bank will boost interest rates up to 4.6% in 2023 before it ends its tightening campaign.

The Fed raised its benchmark interest rate by three-quarters of a percentage point to a range of 3% to 3.25%.

Read more here.

–­Darla Mercado, Yun Li

The major averages gave up their gains and traded lower after the Federal Reserve announced its 0.75 percentage point rate hike. The Dow Jones Industrial Average slipped about 240 points shortly…