US Fed Meeting Outcome LIVE Updates: Powell-led FOMC likely to hold status quo on interest rate; CPI cools in May

London stocks rebounded on Wednesday on revived hopes of interest rate cuts in the near future after data showed cooling inflation in the U.S. and a slowing economy in Britain, while Rentokil Initial further added to the gains.

The blue-chip FTSE 100 closed 0.8 per cent higher in its best day in over a month, while the mid-cap FTSE 250 was up 1.1 per cent, snapping a three session losing streak.

A key US government report showed consumer prices did not rise at all in May, with traders adding to bets of an interest rate cut in September by the Federal Reserve.

The benchmark US S&P 500 rose over one per cent, while the tech-heavy Nasdaq Composite Index hit a record high after the data. Meanwhile, British data showed that economic output was flat in April and the rebound in the economy came to a halt.

The FOMC’Srate-setting panel ended its third policy-setting meeting of the year on May 1 and unanimously voted to hold the policy rate at the 23-year high mark, and said ‘’there has been a lack of further progress toward the Committee’s two per cent inflation objective.”

-Benchmark interest rates were kept unchanged at 5.25-5.50 per cent, held at 23-year high mark

-Fed decided to not cut rates until inflation move sustainably to two per cent target.

-Lack of further progress on inflation, economic outlook uncertain, said US Fed

-Fed decided to slow down pace of balance-sheet runoff starting in June

Gold prices rose one per cent on Wednesday following a surprisingly soft US consumer inflation report, which fueled hopes for an interest rate cut in 2024. Investors are also anticipating the release of the Federal Reserve’s latest policy statement and economic projections.

Spot gold increased by one per cent to $2,338.59 per ounce, while US gold futures climbed 1.2 per cent to $2,335.50. The headline consumer price index remained flat on a month-on-month basis in May, below the expected 0.1 per cent gain. Core prices rose by 0.2 per cent, also falling short of economists’ projections of a 0.3 per cent increase.

Investors have flocked to the precious metal, driven by expectations of monetary easing, geopolitical tensions in Europe and the Middle East, and significant central bank purchases, particularly by China. Spot gold is currently trading around $2,300 per ounce after reaching a record high of $2,449.89 on May 20, marking a gain of more than 11 per cent so far this year.

Bitcoin halted a two-day slide with renewed expectations for US interest rate cuts fueling demand for riskier assets. The largest cryptocurrency gained as much as 3.5 per cent to $69,642 as signs that inflation is cooling bolstered bets the Federal Reserve will cut rates this year. Smaller cryptocurrencies such as Ether, Solana and Dogecoin also rallied.

Shares of crypto-related companies also gained. Crypto exchange Coinbase Global Inc. jumped as much as six per cent, while Bitcoin proxy MicroStrategy Inc. increased as much as 6.9 per cent.

Bitcoin hit a record of $73,798 in mid-March, lifted by inflows into dedicated US exchange-traded funds. But it struggled for new highs in the past three months amid shifting rate expectations.

The so-called core consumer price index — which excludes food and energy costs — climbed 0.2 per cent from April, Bureau of Labor Statistics figures showed. The year-over-year measure rose 3.4 per cent, cooling to the slowest pace in more than three years, according to data out Wednesday.

The policy-setting FOMC is widely expected to hold its benchmark rate steady for a seventh consecutive meeting Wednesday as it awaits more evidence that inflation is still moving down toward its two per cent target. 

“Crypto is a mature asset class now, and similar to broader markets, we should expect upticks when indicators like the CPI suggest interest rates cuts may occur in the not so distant future,” said Michael Safai, co-founder of quantitative trading firm Dexterity Capital.

Indian stock market benchmarks closed in positive territory on Wednesday, June 12, primarily driven by favourable global cues. Most major European and Asian markets rose today, fueled by optimism that the US inflation data will show signs of easing and that Federal Reserve Chair Jerome Powell will provide insight into when rate cuts may begin in the US.

Sensex opened at 76,679.11 against its previous close of 76,456.59 and rose as much as 594 points to its intraday high of 77,050.53, missing its all-time high level of 77,079.04 by just 29 points which it hit on Monday, June 10. The index closed 150 points, or 0.20 per cent, at 76,606.57, with 19 stocks in the green.

Nifty 50 opened at 23,344.45 against its previous close of 23,264.85 and hit its fresh all-time high of 23,441.95 during the session. The index closed 58 points, or 0.25 per cent, higher at 23,322.95, with 32 stocks in the green and 18 in the red.

The overall market capitalisation of companies listed on the BSE increased to nearly ₹429.3 lakh crore from approximately ₹427 lakh crore in the previous session, making investors over ₹2 lakh crore richer in a single day.

‘’Nifty is witnessing consolidation for past three days in absence of fresh domestic trigger while cautiously awaiting US Fed policy outcome. While status quo is expected to be maintained, commentary will be keenly eyed with hint of rate cut in November meeting. Market is likely to consodiate in near term with positive bias,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd.

Last week, the Eurozone and Canada both opted to cut their rates, and Mexico has also initiated rate reductions. “This divergence in monetary policy presents a complex landscape for investors,” notes deVere CEO Nigen Green.

“As the US central bank maintains a tighter stance, global markets are experiencing varying degrees of monetary easing. For investors, this scenario necessitates a reassessment of strategies and portfolios.”

With the Fed’s rates remaining high, sectors such as real estate and utilities, which are sensitive to interest rates, may face headwinds. On the other hand, financials might benefit from higher rates due to increased margins on lending.

As other central banks cut rates, opportunities may arise in international markets. For instance, the Eurozone and Canadian markets could become more attractive as their monetary policies become more accommodative.

Divergent monetary policies also typically lead to currency volatility. Investors should be mindful of potential impacts on their international investments and consider strategies such as currency hedging to mitigate risks.

The future path of Fed policy will be heavily influenced by upcoming economic data. Investors should keep a close eye on reports related to employment, inflation, and GDP growth to anticipate potential shifts in the Fed’s stance.

Nigel Green concludes: “The Fed is almost certainly going to keep rates steady amid easing inflation which signals a cautious approach, prioritizing long-term economic stability over short-term market reactions.

“This stance contrasts with recent rate cuts by other central banks, highlighting a global divergence in monetary policy. “For investors, this new environment requires careful consideration of interest rate impacts, global opportunities, currency risks, and inflation protection.”

Traders ramped up expectations for the pace of Federal Reserve interest-rate cuts this year after cooler-than-expected inflation data, with the bond market seeing the potential for a reduction as early as September.

The shift unleashed steep gains for bonds, with two-year Treasury yields falling as much as 17 basis points to 4.67 per cent, the biggest drop since the December 13 Fed policy meeting. Still ahead Wednesday is the conclusion of the Fed’s June meeting, including revised forecasts for interest rates.

Swap contracts that predict decisions by the US central bank repriced, fully factoring in rate reductions in November and December — and increasing odds of a September cut to about 70 per cent. The rally in US Treasuries spread to Europe, lifting government bonds that had sold off sharply this week after French President Emmanuel Macron shocked investors by calling a snap election.

Euro zone government bond yields dropped after cooler than expected US inflation prompted markets to increase bets the Federal Reserve could cut interest rates as soon as September.

US consumer prices were unexpectedly unchanged in May month on month, and 3.3 per cent higher year on year, both below analysts’ expectations, leading markets to price in a roughly 70 per cent chance of a Fed rate cut by September.

This pricing could be challenged, or underscored, by Fed chair Jerome Powell’s press conference later on Wednesday, following the central bank’s interest rate announcement.

The Fed is widely expected to hold interest rates while publishing new economic projections likely showing fewer rate cuts this year than the three projected in March.

Germany’s 10-year government bond yield, the benchmark for the euro area, was last down 8 basis points at 2.54 per cent, on track for its biggest daily drop since May 15. Italy’s 10 year yield dropped 13 basis points to 3.93 per cent.

Even though the European Central Bank cut rates by 25 basis points last week, investors think its scope for substantial rate cuts while the Fed stays on hold is limited, so European assets are responsive to US data.

The overall CPI was flat in May compared with April, the first time in almost two years that it didn’t climb — thanks in part to a drop in gasoline prices on the month. The core index, which excludes food and energy, rose 0.2 per cent, the least since last October – undershooting all but 12 of the 71 forecasts in Bloomberg’s survey.

Services were the main reason why core inflation came in less than forecast, helped by a decline in car insurance after the biggest run-up in prices in that category since the 1970s. Airline fares were also down. The so-called supercore services gauge, which excludes housing, dropped by 0.04 per cent, the first decline since 2021 and boding well for the Fed’s preferred inflation gauge, the PCE, which is out later this month.

The annual rate of core inflation came down to 3.4 per cent, the lowest since April 2021, aided by the smallest increase in housing costs in more than two years. Headline CPI came in at 3.3 per cent.

The release boosted the likelihood of Fed policymakers projecting two rate cuts for 2024 when they release their updated forecasts later on Wednesday, said economists. Interest-rate futures showed increased bets on the Fed kicking off rate cuts in September.

Fed chair Jerome Powell has insisted in past public comments that the FOMC will remain “data-dependent” in its decision-making and will not be swayed by politics. A September start to rate cuts would almost certainly thrust the Fed into the middle of a fractious presidential campaign between Biden and his likely Republican opponent, Donald Trump.

“The June FOMC meeting will be one of the most pivotal events this year as Federal Reserve Chair Jerome Powell may provide the clearest hint about the rate-cut timetable. The new dot plot likely will indicate two 25-basis-point cuts this year, compared with three in the March version,” said Amit Goel, Co-Founder & Chief Global Strategist at Pace 360.

Here are the five crucial factors that will influence the Fed’s policy decision on Wednesday:

1. Tight jobs market
2. Growth indicators
3. Inflation trend
4. Geopolitical scenario
5. Market mood

The S&P 500 and the Nasdaq jumped to record highs on Wednesday after softer inflation data lifted hopes for a rate cut by the Federal Reserve, while Apple overtook Microsoft as the world’s most valuable company.

Apple’s shares climbed 3.7 per cent to hit a record high and dethrone Microsoft for the first time in five months, with the iPhone maker’s market valuation rising to $3.24 trillion versus Microsoft’s $3.23 trillion. The latest spurt came soon after Apple launched its artificial intelligence-integrated products on Monday, when it sprinted past AI chip powerhouse Nvidia’s $3 trillion valuation.

Markets boosted expectations for a September start to rate cuts after the data, pricing in an over 70 per cent chance, according to the CME’s FedWatch tool, from 54 per cent prior to the report.

“It certainly seems as if the trend in inflation continues to be our friend, working its way lower and taking the Street by surprise… that is going to end up working in favor of the Fed,” said Sam Stovall, chief investment strategist at CFRA Research.

US Federal Reserve Chair Jerome Powell said on Tuesday, May 14, that he expects US inflation to resume declining through 2024 as it did last year, however, his confidence on lower inflation has lately dropped with the quick rise in prices during the first quarter. Powell says it will likely take more time than previously thought to attain confidence needed to lower the key interest rates.

During the event hosted by the Foreign Bankers’ Association in Amsterdam, Powell said, “I expect that inflation will move back down … on a monthly basis to levels that were more like the lower readings that we were having last year.” “I would say my confidence in that is not as high as it was,” added the Fed chief.

Still, Powell said he felt it unlikely that the Fed would raise interest rates again, restating as he did after the Fed’s last meeting that the central bank will be “patient” and allow the current policy rate to have its full impact. “I don’t think that it is likely based on the data we have that the next move that we make will be a rate hike,” Powell said. “It is more likely … we hold the policy rate where it is.”

“We did not expect this to be a smooth road,” Powell said. The Fed chief also described the monetary current policy as restrictive by “many, many measures” but noted that only time will tell whether interest rates are sufficiently high to bring inflation back to the central bank’s two per cent goal.

The US economy remains strong, defying recession forecasts. This indicates that the US economy is well-placed to grow at a healthy pace this year.

On Tuesday, the World Bank raised its 2024 global growth outlook due to the strong US economy.

According to a Reuters report, the World Bank expects the global economy to stabilise at 2.6 per cent in 2024, unchanged from 2023, and up 0.2 percentage point from the World Bank’s January forecast.

The World Bank is now forecasting 2.5 per cent US growth for 2024 – matching the 2023 pace – and up sharply from the January forecast of 1.6 per cent.

Strong growth indicators indicate the Fed may keep rates higher for a longer period unless it is convinced that elevated interest rates exert significant pressure on the economy.

The Fed will keep in mind that the Russia-Ukraine war and conflict in West Asia persist. Any escalation of tension in the West Ais region will potentially shoot up crude oil prices, dealing a blow to the fight against inflation.

The Federal Reserve will almost certainly hold US interest rates steady at the current 23-year high on Wednesday and investors need to review their portfolios amid a divergence in global monetary policy.

This is the message from Nigel Green, the CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organisations, as the latest Consumer Price Index (CPI) report shows no increase in inflation for May, a sign that inflation may be easing its grip on the US economy.

He comments: “With the annual CPI increase at 3.3 per cent, markets might be hopeful for potentially more rate cuts, but there remains a real risk that the Fed’s cautious approach means that such a move may not come until 2025.

“The Labor Department’s CPI report, a key gauge of inflation that tracks the cost of a broad basket of goods and services, remained flat from the previous month.

“This lighter-than-expected inflation data has led some market participants to price in the possibility of rate cuts. “However, one positive data point is not enough for the US central bank to change course.

Federal Reserve officials cite the robust labor market as a significant factor in their decision to maintain the current rate. The strength of the job market provides the Fed with the flexibility to keep rates elevated, contrasting sharply with recent actions by other major central banks.

Wall Street stocks jumped early Wednesday after US data showed lower inflation in May ahead of a Federal Reserve interest rate decision later in the day. The annual consumer price index came in at 3.3 per cent in May, down 0.1 percentage point from April, the Labor Department said in a statement — slightly below expectations.

While the Fed is widely expected to keep interest rates unchanged at Wednesday’s meeting, the figures could keep the US central bank on track for rate cuts later in 2024.

About 10 minutes into trading, the Dow Jones Industrial Average was up 0.7 per cent at 39,028.46. The broad-based S&P 500 gained 0.9 per cent to 5,421.87, while the tech-rich Nasdaq Composite Index advanced 1.2 per cent to 17,557.33

US consumer prices were unexpectedly unchanged in May amid cheaper gasoline, but inflation likely remains too high for the Federal Reserve to start cutting interest rates before September against the backdrop of a persistently strong labor market.

The unchanged reading in the consumer price index reported by the Labor Department’s Bureau of Labor Statistics on Wednesday followed a 0.3 per cent increase in April. In the 12 months through May, the CPI advanced 3.3 per cent after increasing 3.4 per cent in April. 

The Bureau of Labor Statistics reported last week that the US non-farm payrolls increased by 272,000 for the month, considerably higher than the Wall Street consensus of 190,000 and well above April’s comparatively muted gain of 165,000. In addition, average hourly earnings rose 4.1 per cent over the past 12 months, more than expected.

With labour supply dropping, average hourly earnings grew, rising by 0.4 per cent month-on-month (MoM) in May from 0.2 per cent in April. Overall, the robust pace of hiring will likely compel chair Jerome Powell-led FOMC to retain its guidance of keeping rates elevated and maintaining status quo in the policy meeting, according to ICICI Bank.

‘’We expect the restrictive monetary policy regime to work to cool the labour market. The downward revisions in the previous two months shows that on a trend basis hiring is slowing that should likely become gradually more pronounced over the remainder of the year. While we maintain our expectations for a September cut, the odds have reduced and it remains contingent on the evolution of data,” said economists at ICICI Bank.

Crude oil prices ticked higher on Wednesday after three key forecasters predicted that global oil inventories would fall in the second half of 2024, boosting prices ahead of the US Fed policy outcome.

Brent crude futures were up 88 cents, or about 1.1 per cent, to $82.80 a barrel, while US West Texas Intermediate (WTI) crude futures were up 96 cents, or roughly 1.2 per cent, to $78.86. Both contracts rose by $1 or more earlier in the session.

US inflation rose less-than-expected in April 2024, suggesting that inflation resumed its downward trend at the start of the second quarter in a boost to Wall Street expectations for a September interest rate cut by the US Federal Reserve. The US CPI rose 0.3 per cent sequentially. In the 12 months through April, the CPI increased 3.4 per cent year-on-year, which follows a 3.5 per cent rise in March 2024. The annual increase in consumer prices has dropped from a peak of 9.1 per cent in June 2022, however the progress has since slowed.

Justin Khoo, Senior Market Analyst, APAC – VT Markets:

“Last Friday, the Bureau of Labor Statistics reported that the US non-farm payrolls increased by 272,000 for the month, considerably higher than the Wall Street consensus of 190,000 and well above April’s comparatively muted gain of 165,000.

In addition, average hourly earnings rose 4.1 per cent over the past 12 months, more than expected.

Beyond signaling a still-vibrant labor market, the data at the very least adds to the narrative that the Fed doesn’t have to rush to lower interest rates. As such, futures traders cut bets on rate cuts which meant a stronger US dollar for now.

Pricing in Fed funds futures pointed to almost no chance of a reduction at either the Federal Open Market Committee’s meeting on Wednesday or on July 30-31. From there, pricing indicates about a 50-50 chance of a September move, and only about a 43 per cent probability that the Fed will follow up with a second cut before the end of the year”

The US consumer price index-based (CPI) data will be released today ahead of the FOMC decision. Analysts and policymakers will look out for the inflation data which will likely impact the central bank’s interest rate decision later today. US Fed is widely expected to maintain the status quo on key rates.

Siddharth Chaudhary, Senior Fund Manager – Fixed Income, Bajaj Finserv Asset Management:

“Market will watch out for US CPI and FOMC outcome today. The current pricing by US Treasury curve suggests that bonds have priced in little less than 50bps cut by December 2024. 

The Fed has maintained the projection of three 25 bps reductions for last six months now versus the markets which has lowered its expectation from around seven cuts in early this year in response to data surprises in US.

The market right now is also not pricing in any possibility of Fed pivoting to less than two cuts in this meeting for the rest of the year. This though is not base case but still remains a possibility in light of recent data”.

US Fed chairman Jerome Powell-led FOMC will unveil fourth policy decision of 2024 later tonight. Wall Street analysts widely expect the central bank to leave the benchmark interest rates unchanged at 5.25 per cent – 5.50 per cent for the seventh straight meeting.