Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Instant View: Fed hikes 50 bp, Powell tamps down speculation of 75 bp hike

Economy May 04, 2022 03:34PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: An eagle tops the Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

NEW YORK (Reuters) - The Federal Reserve on Wednesday raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, and said it would begin trimming its bond holdings next month as a further step in the battle to lower inflation.

The U.S. central bank set its target federal funds rate to a range between 0.75% and 1% in a unanimous decision, with further rises in borrowing costs of perhaps similar magnitude likely to follow.

On Wall Street, stocks seesawed after the statement then turned sharply higher after Fed Chairman Jerome Powell said at a press conference that the Fed was not actively considering raising rates 75 basis points at coming meetings.


STOCKS: The S&P 500 turned sharply higher was last up 1.89%

BONDS: The 10-year U.S. Treasury note yield seesawed and was down at 2.9188% and the 2-year yield fell to 2.6842%

FOREX: The dollar index extended 0.8% lower



“I think it’s important to take stock of where we were an hour and a half before the meeting, basically the market was pricing in essentially a 50/50 chance that you see a 75 basis point hike by July, between June and July, and so I think the most important takeaway here that I think the market was really fixated on, was whether or not a 75 basis point hike is on the table, and he (Powell) basically pushed back on that.”

“That doesn’t necessarily mean he won’t do it, but they certainly are strongly indicating that they prefer to just do a series of 50s, even if it’s doing three 50s in a row, maybe four, but it seems like pricing in three 50s is not too far over where the market was at anyway.”


“The key turning point was when he said they were not actively considering 75 bps. At worst, the Fed wants to meet market expectations. At best, they want to go slower or lower than what the market was pricing.”


"It was a little bit of a snoozer. There was nothing too surprising, the Fed really delivered on what the market was expecting.

"There were some whispers that they could potentially go to 75 basis points, as one of Fed presidents Bullard has been hinting a few times that they could be more aggressive than 50 basis points. But what I found most interesting: there were no dissents, it was unanimous.

"Everything the Fed did was pretty much already priced in, nothing here in the text or policy statement from my perspective should be a surprise for investors."


“The Fed floated the idea of a 50 bps rate hike and balance sheet reduction far enough in advance that we’ve already lived through the market hissy-fit before the Fed actually hiked. A key question to me is how long the Fed can maintain quantitative tightening at the pace it outlines. There’s a maturity desert in a couple years with its holdings that it might only be able to shrink its balance sheet by $2 trillion over the next two years and then have to call it quits.”


“It’s a testament to how well they messaged, that you deliver a 50 basis-point hike and there is not so much as a blink in the market. This one has been well communicated and well delivered. I would say very incrementally I found it slightly less hawkish than I thought it would be, it remains to be seen how the press conference goes.”

“But there was no dissent in favor of a larger move and the balance sheet only starts June 1, which I’m not sure why they need to wait another month to begin that, and the move to the full cap takes three months. There were calls to do it on a more constricted timeline, but there is an awareness that they are tightening into a slowing economy and there are risks associated. For the magnitude of the move it has been very uneventful and that is a good thing.”


“The hawks are probably a little disappointed that the balance sheet reduction isn’t starting this month and there will be caps on it at $95 billion. They could have gone more on that, but they’ve given themselves some wiggle room in terms of how much they’re willing to let run off. But the decision was expected, and the reaction has been contained and as expected.”

“I’m going to be looking at the press conference if someone presses Powell on what “highly attentive” means. Is that a signal they’re willing to go 75 basis points at the next meeting? I think the fact they referred to inflation probably tells me they are willing to go faster. But the Fed wants to go where the market’s pricing it, and the market has given them a lot of wiggle room.”  


“The Fed has implemented an outsize increase in interest rates at what is only the second hike in this tightening cycle. It now looks like they are engaged in a dash to get rates back to neutral territory by the end of this year.  Their singular focus on trying to control inflation is not only spelt out explicitly – with the committee described as being ‘highly attentive” to inflation – but is also reflected in short shrift given to the Q1 GDP decline and the rapid pace of balance sheet reduction ahead. With inflation pressures ongoing, the risk of monetary tightening prompting a significant growth slowdown or even recession in 2023 is growing.”


    “I would think that it shouldn’t rattle markets. I think the most noteworthy part of the statement was the addition of the sentence that says the committee is highly attentive to inflation risks, which just emphasizes the point. We knew that, but choosing to include that in the statement makes very clear which direction they are leaning when they look at the current environment. They are worried about inflation. That came on the heels of an acknowledgement of the supply chain disruptions in China, which are another risk in that direction.”


    "Most of what the Fed did today was expected. So I think this could give some breathing room in terms of the market to rally. Of course there's still a question mark as to whether they will resort to a three-quarter-of-a-point hike. I don't suspect that will be the case because I think we should begin to see inflation peak in the next month. So three quarters of a point is, as far as I'm concerned, out of the question. Basically the announcement was in line more or less with what the market was looking for. We have to wait to see when the press conference begins if Powell strikes an even more hawkish tone."


    "To nobody's surprise, the Fed delivered their first 50 bps hike since 2000; it was, however, a little surprising that outspoken uber-hawk Bullard didn't vote for a larger increase. Commentary on the balance sheet was also broadly in line with expectations, having been teed up in the March minutes,"

    "The FOMC also signaled an aggressive path of further rate hikes, reiterating the recently stated desire to raise rates to their neutral level as soon as possible. However, given the significant amount of hikes already priced into the market - the 2-year trades around 30 bps north of neutral, for instance - the bar for a hawkish surprise was always a high one."

    "Hence, although hawkish in its own right, the decision is somewhat dovish compared to the market's lofty expectations, thereby igniting a rally in risk assets, causing the USD to soften a touch, a classic 'buy the rumor, sell the fact' trade, while also sparking demand for Treasuries,"


“The markets, as a whole, are looking at is as expected. It’s not more hawkish than expected. (The Fed is) hewing to the middle ground. No big surprise in the balance sheet work-down. It’s agreeable to markets at this point.”

“Now the information is out there. The guessing is done and people who positioned themselves for a certain outcome, once it happens, can step aside. Now the discussion turns to ‘what’s going to happen at the next meeting?’ That’s the jockeying that’s going on now. The news is out, what does that mean to expectations moving forward?”

“I don’t know what (the Fed is) talking about in terms of (balance sheet) runoff. What’s going to happen, is people are going to extrapolate that at this pace it will be unwound in the next three or four years, whatever it is, and that’s what everyone is trying to assess.”

Instant View: Fed hikes 50 bp, Powell tamps down speculation of 75 bp hike

Related Articles

UK's Boris Johnson on the brink as ministers quit
UK's Boris Johnson on the brink as ministers quit By Reuters - Jul 06, 2022

By Michael Holden and Elizabeth Piper LONDON (Reuters) -British Prime Minister Boris Johnson was clinging to power on Wednesday, gravely wounded by the resignation of ministers...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email