Markets rise after Federal Reserve hits pause again on rate hikes

Federal Reserve Board Chairman Jerome Powell answers a question at a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, today.

US markets soared higher Wednesday, rebounding after a dismal October and three straight months of losses.

The Dow rose by 221 points, or 0.7%, in Wednesday trading. The S&P 500 hit a session high, and was up 1.1%. The tech-heavy Nasdaq Composite was 1.6% higher.

The Federal Reserve said it would keep interest rates between 5.25% and 5.5%, and amended language in its post-meeting statement to say that “economic activity expanded at a strong pace in the third quarter.” Previously, Fed officials wrote that the economy had grown at a “solid pace.”

Fed Chair Jerome Powell said that he would not rule out another rate hike at the Fed’s next meeting in December, but Wall Street seemed to brush off the fear of more economically painful hikes.

In a note to investors, Whitney Watson global co-head and co-chief investment officer of fixed income at Goldman Sachs Asset Management wrote that “the economy’s resilience has not stalled labor market rebalancing or revived wage and price pressures, suggesting disinflation will progress and indicating that the Fed will likely keep its policy unchanged into 2024.”

Treasury yields, meanwhile, slumped to 4.76% on the Fed news.

In corporate news, shares of semiconductor company AMD closed 9.7% higher after the company reported strong third-quarter earnings results.

Shares of CVS dropped 0.4% even after the health care company reported an earnings beat.

WeWork plummeted by more than 47% as reports of a possibly imminent bankruptcy broke.

The Federal Reserve chose not to raise its key interest rate on Wednesday, but its benchmark lending rate remains at its highest level in 22 years.

Given that the Fed influences — directly or indirectly — interest rates on financial accounts and products throughout the US economy, that means savers and people with surplus cash still have many opportunities to get a far better return on their money than they’ve had in years — and even more importantly, a return that outpaces the latest readings on inflation.

Here are low-risk options to get the best yield on funds you plan to use within two years, and also on cash you expect to need within the next two to five years.

Read more here.

A television screen shows the rate decision of the Federal Reserve a trader works at his post on the floor of the New York Stock Exchange, Wednesday, Nov. 1.

US markets jumped higher on Wednesday afternoon after the Federal Reserve announced it would keep interest rates unchanged for the second meeting in a row.

The Dow soared 260 points, or 0.8%. The S&P 500 gained 1.1% and the Nasdaq Composite was up 1.6%.

While Fed Chair Jerome Powell emphasized in his press conference after the announcement the requirement that financial markets would need to be persistently tightening to satisfy policymakers, investors seemed to be buoyed by his tone.  

Leading the market higher were tech stocks, with information technology stocks outperforming the rest of the market. Shares of semiconductor company AMD were 9.3% higher and Nvidia was up by 3.5%.

While Federal Reserve Chair Jerome Powell spent a good chunk of Wednesday’s press conference answering reporters’ questions about what elevated yields mean for the central bank, yields basically said, “You might want to think again!”

After Powell finished speaking, the yield on the 10-year Treasury hit an intra-day low of 4.755%. That’s 120 basis points lower than where the yield opened on Wednesday.

Although he didn’t outright say it, many investors appeared to take Powell’s remarks as yet another sign that the central bank has finished hiking interest rates.

In addition to Powell’s remarks, news from earlier today that the Treasury Department wouldn’t be auctioning off as much debt as investors feared ignited the fall in bond yields.

Commuters at the Hoboken Terminal in Hoboken, New Jersey, on Oct. 19.

Federal Reserve Chair Jerome Powell said Wednesday he likes what he’s seeing on the wage growth front: a steady and gradual easing.

“Wage increases have really come down significantly over the course of the last 18 months, where they are substantially closer to a level that would be consistent with 2% inflation over time,” Powell said, noting that a variety of gauges have shown similar trends.

Data released earlier this week showed that the Employment Cost Index, a closely watched measurement of pay and benefits, rose 1.1% during the third quarter from the quarter before, according to the Bureau of Labor Statistics. That’s up a touch from the second quarter’s 1% growth rate.

Annually, however, there’s a much clearer picture of slowing wage gains. The latest ECI rose 4.3% on a year-over-year basis, which was down from 4.5% the quarter before and 4.8% in the first quarter.

“If you look back a couple of quarters, it was much higher, came down substantially in June, and then the September reading was more level than the June reading,” Powell said. “So, in a way, it was validating and very close to our expectations internally, too.”

Still, wage growth is running at a quicker pace than it did pre-pandemic (from 2015 to 2019, BLS data shows the ECI with an average growth rate of 2.47%).

“In my thinking, it’s not the case that wages have been the principal driver of inflation so far,” he said. “I do think it is fair to say as we go forward, as monetary policy becomes more important relative to supply-side issues I talked about in the unwinding of the pandemic effects, it may be that the labor market becomes more important over time, too.”

Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on November 1 at the Federal Reserve in Washington, DC. 

Even though the Federal Reserve chose to hold off on an interest rate hike for the second straight month, Fed Chair Jerome Powell dashed any hopes for a rate cut in the near future.

At the Fed’s post-meeting press conference, Powell said the Fed’s monetary policy committee “is not thinking about rate cuts right now at all.”

“We are still very focused on the first question, which is, have we achieved a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time,” he said.

The idea of a future interest rate cut doesn’t come up in meetings right now, Powell said.

After the Fed is confident that it has successfully tamped down inflation, Powell said the committee will then have to deliberate how long to keep interest rates elevated before they begin considering rate cuts.

Traders work on the floor of the New York Stock Exchange during morning trading on November 1.

After the Federal Reserve’s decision to hold interest rates steady on Wednesday, traders are predicting rate hikes will be off the table for the rest of this year.

According to the CME FedWatch tool, investors who trade fed fund futures contracts estimate there is a higher than 70% chance that interest rates will stay the same at the Fed’s next meeting, which concludes on December 13.

However, Fed Chair Jerome Powell said Wednesday that future interest rate decisions haven’t been made yet.

“We didn’t talk about making a decision in December today,” Powell said at the Fed’s post-meeting press conference. “The idea it would be difficult to raise again after stopping for a meeting or two is just not right.”

For now, traders are betting that interest rates will hold steady for the first few months of 2024, as well.

The US Capitol in Washington, DC, on October 9.

The US economy remains resilient for now, but events such as the Israel-Hamas war and broader uncertainty — both globally and domestically — present “plenty of risk,” Federal Reserve Chair Jerome Powell said Wednesday.

War, geopolitical instability, widescale labor strikes and a potential US government shutdown are among “significant issues” that could affect the US economy, Powell acknowledged during a press conference with reporters following the Fed’s policymaking meeting.

“Our job is to monitor those things for economic implications,” Powell said. “The [United Auto Workers union] strike appears to be coming to an end; oil prices have flattened out … another one is the possibility of a government shutdown — we don’t know about that one. So, there is plenty of risk out there.”

Still, Powell said his eye is on the bigger picture of a “strong economy, strong labor market” and the Fed making progress on inflation.

“We are very focused on getting confident that we have achieved the stance of monetary policy that is sufficiently restrictive,” he said. “That is really our focus.”

Homes in Middlesex Township, Pa., in April.

Financial conditions are getting worse for Americans, Fed Chair Jerome Powell said Wednesday. Borrowing costs are higher, and the housing market is effectively frozen.

So you’d think Powell would say a recession is around the corner.

Not so fast.

“This has been a resilient economy. It has been surprising in its resilience,” he said.

Previewing the Fed’s minutes from its monetary policy meeting that concluded today, Powell said the Fed did not factor in a recession in the near future.

“It would be hard to see how you would do that if you look at the activity we have seen recently, which is not really indicative of a recession in the near term,” Powell said.

The Fed releases its minutes three weeks after each policy meeting.

US Treasury yields have climbed to their highest levels in 16 years and that “could matter for future rate decisions,” Fed Chair Jerome Powell told reporters on Wednesday.

If yields stay close to their current levels, the Fed could skip another rate hike at future meetings, Powell previously implied. But as he noted Wednesday, “that is something that remains to be seen,” Powell said, adding that “things are fluctuating back and forth.”

“That is not what we are looking for,” he said.

Powell also noted that the rise in longer-term yields is not solely a product of investors expecting interest rates to stay higher for longer.

“Perhaps the most important thing is that these higher Treasury yields are showing through the higher borrowing costs for households and businesses and they will weigh on economic activity to the extent that tightening persists,” Powell said.

Federal Reserve Chair Jerome Powell speaks to media during a press conference after a Federal Open Market Committee meeting, in Washington, D.C., on Wednesday, November 1.

“There’s very little shock factor in today’s rate decision,” said Seema Shah, chief global strategist at Principal Asset Management.

However, “Powell’s take on what’s driving bond yields higher and the Fed’s level of discomfort will be key,” she said.

The Federal Reserve’s post-meeting statement’s emphasis on how financial conditions are weighing on the economy “is potentially a signal that the Fed has minimal appetite to raise rates further,” Shah noted.

But with a still-robust economy and a slow but steady easing in inflation, Chair Powell should avoid being “overly dovish.”

Federal Reserve Board Chairman Jerome Powell speaking during a press conference today in Washington, DC.

Stocks rose Wednesday as Federal Reserve Chair Jerome Powell took to the podium for the post-meeting press conference.

The Dow rose 151 points, or 0.5%. The S&P 500 gained 0.7%. The Nasdaq Composite added 0.9%.

The Fed on Wednesday held interest rates steady, as expected by Wall Street and economists. That marks the central bank’s second-straight rate pause, holding the benchmark lending rate at its highest level in 22 years.

In addition to announcing that interest rates will remain at a 22-year high, the Federal Reserve also said it will “continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.”

The Fed sells government securities from its multitrillion-dollar balance sheet, which are listed as assets, whenever it wants to cool down the economy to curb inflation, and vice versa whenever it wants to stimulate growth to prop up employment.

The Fed’s current strategy of selling government securities, or shrinking its balance sheet, is known as “quantitative tightening,” or QT for short, and the central bank could continue to do that even during rate cuts sometime next year.

Wells Fargo economists expect a recession in the second half of 2024 to prompt the Fed to end QT, but if there isn’t a recession, the Fed could continue with QT, even during rate cuts, which “would allow the [Fed monetary policy committee] to attempt to return the balance sheet to roughly its ‘equilibrium’ size.”

It’s unclear what that “equilibrium size” is, but the Fed has sharply expanded its balance in response to the Great Recession and the Covid-19 pandemic.

The Fed’s post-meeting statement noted that “economic activity expanded at a strong pace in the third quarter” — a recent development that has puzzled some economists.

Despite the Fed aggressively raising interest rates 11 times since March 2022 in a bid to combat inflation, the US economy has not only avoided a recession so far, but instead expanded at a blistering 4.9% annualized rate in the third quarter, mostly due to solid consumer spending.

The economy’s surprising resilience is one reason behind the recent run-up in bond yields, with the benchmark 10-year US Treasury yield hovering near the 5% threshold — though it dipped below 4.8% Wednesday morning after the Treasury Department said it would auction a slightly smaller amount of debt than investors expected.

While inflation has retreated markedly from its four-decade peak last summer, it remains above the central bank’s 2% target.

A red-hot economy could make the proverbial final mile of the Fed’s historic inflation fight more difficult, and possibly undo some of the welcome progress it has seen over the past year.

But it’s unlikely that the third quarter’s robust economic strength will persist, simply because it was an anomaly. In the five years ahead of the Covid-19 pandemic, from 2014 to 2019, GDP growth averaged 2.6%, according to Commerce Department data.

A "We're Hiring" sign advertising job openings is viewed in the window of a Taco Bell restaurant on October 20 in Orlando, Fla.

Federal Reserve officials are paying close attention to hiring, wages and labor demand.

A weaker job market would be well received by the Fed, since it would bring on similarly weaker consumption. Softer job market conditions would also mean employers feel less pressure to jack up wages to recruit talent, which could be passed on to consumers.

“Moderating wage growth, along with slower demand for goods and services, easing rent inflation and reduced pricing power should lead to further disinflation and argue in favor of the Fed holding the fed funds rate constant in the coming months,” wrote Lydia Boussour, senior economist at EY-Parthenon, in an analyst note.

“Looking ahead, we foresee softer labor market conditions with further hiring freezes and strategic resizing decisions along with some continued moderation in nominal wage growth,” she wrote.

The Bureau of Labor Statistics releases October data gauging the US job market Friday, including monthly job growth, wage gains and the unemployment rate.

The US Treasury Department building is seen in Washington, DC, on January 19.

Yields on US Treasury notes slid immediately following the Federal Reserve’s announcement Wednesday that it is holding interest rates steady for another meeting.

Shortly afterwards, the yield on the 10-year Treasury note dropped to around 4.78%.

But what’s really moved yields today has little to do with the Fed.

This morning, the Treasury Department announced its quarterly refunding plans, which involves auctioning a slightly smaller amount of debt than investors expected.

This comes after the Treasury announced on Monday it is planning to borrow $776 billion this quarter, which is $76 billion less than the estimate the agency made in August. The revised estimate is a product of higher-than-anticipated tax revenue, partially a result of deferred tax collections from residents and corporations in states like California where tax deadlines were extended due to extreme weather.

The Federal Reserve held interest rates steady Wednesday for the second consecutive meeting, leaving the central bank’s benchmark lending rate at its highest level in 22 years.

Economists and financial markets had expected the pause in the Fed’s aggressive rate-hiking campaign, after several Fed officials signaled they anticipate a further slowing of the US economy as it continues to absorb the effects of higher borrowing costs.

Stocks pared back their earlier gains Wednesday mid-morning, as Wall Street looked to the Federal Reserve’s interest rate decision.

The Dow rose 12 points, or 0.04%. The S&P 500 gained 0.3% and the Nasdaq Composite rose 0.5%.

Traders expect the central bank to hold steady, but will be watching for clues on where it’ll take rates from there.

“We fully expect the Fed to extend their pause on rate increases basically to buy themselves time to hunt for something, anything that can give them reasons to not hike and eventually cut,” said Scott Acheychek, chief executive of REX Shares.

“If data continues to come in stronger than expected, the Fed may be hard pressed to not raise rates in December or early next year,” he added.

Traders work on the floor of the New York Stock Exchange during morning trading today.

US markets rose on Wednesday after closing out a third straight month of losses.

The Dow was 132 points, or 0.4% higher in midday trading. The S&P 500 climbed 0.5% and the Nasdaq Composite was up by 0.6%.

Information technology stocks outperformed on Wednesday. The sector was up more than 1% after semiconductor company AMD beat third-quarter earnings expectations. Shares of AMD were 7.6% higher. The company also lifted other semiconductors and tech companies — Nvidia was trading up 2.5% and shares of Microsoft were up nearly 2%.

Investors, meanwhile, are eagerly awaiting the Fed’s next interest rate decision, expected at 2 pm ET. While traders mostly expect rates to remain steady this month, they’ll parse every word from Fed Chair Jerome Powell’s press conference for clues about what comes next.

Powell has said that the US central bank wants to retain the option of another hike in case data shows inflation’s descent has stalled.

Shares of CVS, meanwhile, fell by 2.2% even after the health care and pharmaceutical company posted gangbusters third-quarter earnings results.

Shares of WeWork plummeted nearly 51% on reports that the company may be preparing to file for bankruptcy.

The yield on the 10-year US Treasury note dipped below 4.8% Wednesday morning. This comes after the Treasury Department announced its quarterly refunding plans, which involves auctioning a slightly smaller amount of debt than investors expected.

That’s a stark contrast to last quarter’s announcement, which caught investors off guard upon learning that Treasury’s auction sizes would be much larger than they anticipated. That contributed to yields rising to their highest levels since 2007.

The rise in yields was one of the reasons Federal Reserve Chair Jerome Powell recently said the central bank could afford to take a more gradual approach in deciding whether to hike interest rates again.

Bond yields, namely the yield on the 10-year Treasury note, dictate the interest rates on credit cards, mortgages and auto loans. When those rates go up, borrowing money becomes more expensive. Hence, they’re essentially accomplishing the same thing a Fed rate hike would.

But if Wednesday’s slide in yields persists, it could force the Fed to not only act more nimbly but give more close consideration to raising interest rates.