Morning Market Brief: Thursday, June 15, 2023

Fed holds steady as US producer prices decline?

Although attention focused on the US Federal Reserve Board’s (Fed) decision to maintain interest rates, a separate report released on Wednesday revealed a decline in US producer prices in May, driven by a drop in gasoline costs. It could signal easing supply-side inflation. The Fed rate hikes began in March 2022 after inflation hit a four-decade high.?

• Fed officials unanimously decided to pause. This leaves the federal funds rate in a target range of 5%-5.25%, but further interest-rate increases this year are still likely.
• The Fed’s statement highlighted moderate economic growth and robust jobs gains. However, the committee expects a tighter credit environment to affect hiring and inflation.
• 2023 economic growth forecast was revised up to 1% from 0.4%. The US unemployment rate is expected to be 4.1% at the end of the year compared to the previously forecasted 4.5%.
• Fed Chair Jerome Powell reemphasized the tight labour market but noted that supply and demand are showing signs of balancing more evenly.
• Long-term inflation expectations seem well-anchored. In addition, Powell said the ‘full effects of our tightening have yet to be felt.’

The Fed's evaluation of various outcomes related to interest rate decisions plays a crucial role in shaping the economic landscape. In parallel, investors should prepare for different scenarios by assessing the potential implications of the Fed's actions on their portfolios. For additional insight, consider looking at the Fed’s ‘dot plot’, but bear in mind that this graphical representation of interest-rate projections by individual members of the FOMC does not always translate into policy decisions.

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