This past week the Federal Reserve raised rates for the 10th time in a little over a year. Let's discuss what happened and see what this week has in store for us.
The Last Hike?
As we expected, the Federal Reserve raised the Fed Funds Rate to a range of 5.00% - 5.25%. Remember, this interest rate affects short-term loans like credit cards, autos, and home equity lines of credit.
The big question is whether this will be the last hike. When the Fed statement was released, the markets believed the Fed was signaling a pause by omitting the following line from the previous statement: "The Committee anticipates that some additional policy firming may be appropriate."
However, shortly after the statement was released, Fed Chair Powell hosted a press conference and right at the top said the Fed Members have not discussed a "pause" in rates. Bottom line? Expect more uncertainty and volatility as it relates to rates.
Sound And Resilient
This is the term Fed Chair Powell used to describe the banking sector. Unfortunately, we are seeing more banks have issues. This week it was First Republic taken over by JP Morgan Chase and as of this writing PacWest was said to be "exploring strategic options." The fear of banking contagion has elevated uncertainty in the financial markets. It's not clear if and how many more banks will continue to have issues. Bottom line? The fear of this story has created a "safe haven" to trade into bonds where prices move higher, and rates move lower.
European Central Bank Hikes By Less
The European Central Bank (ECB) hiked their benchmark rate by .25%, the smallest since the start of their hiking cycle. Like our Fed, they too signaled they would be "data-dependent" going forward, leading markets to speculate a pause on future rate hikes.
Bottom line:The Federal Reserve is sending mixed messages on the future direction of rates. Meanwhile, long-term rates, which the Fed doesn't control, are near their best levels in months and sense all the uncertainty in our economy will prompt the Fed to pause and potentially cut rates later this year. The incoming data and issues in the banking system will determine what happens next.
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