Market Wire - Fed Raises Rates 75 Basis Points, Stays Rhetorically Hawkish

In line with expectations, the Federal Reserve’s rate-setting committee voted unanimously to raise its benchmark interest rate by 75 basis points while emphasizing a continued commitment to fighting inflation. 

The change in policy was fully priced in rate futures after committee hawks had guided markets - spooked by an outsized consumer price index number in June - away from betting on a 100 basis-point move. Immediately after the release, the dollar was unmoved and expectations for the benchmark rate at year-end held near 3.38 percent. 

Only two key sentences in the statement were changed, relative to June. Officials acknowledged a slowing economy, saying, “Recent indicators of spending and production have softened” but pointed to strength in other areas, noting “robust” job gains and low employment. Language referring to Covid risks in China was also removed.

On balance, this suggests that the central bank feels relatively content with prevailing market expectations, preferring to maintain its hawkish tone until underlying conditions evolve in a more conclusive way. 

However, markets could move dramatically during the post-conference press conference - where Chair Jerome Powell will likely be pressed on the risk of an overly sharp slowdown and the rate outlook for 2023. In addition, fresh data on second quarter gross domestic product and the Fed’s preferred inflation measure are due in the latter half of the week.