Raphael Stevens

After a two-day meeting, the Federal Reserve decided to leave interest rates unchanged.
“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the central bank’s post-meeting statement said.
The surprising aspect of the decision came with the “dot plot” in which the individual members of the FOMC indicate their expectations for rates further out. The dots moved decidedly upward, pushing the median expectation to a funds rate of 5.6% by the end of 2023.

WASHINGTON —  The Federal Reserve on Wednesday decided against what would have been an 11th consecutive interest rate increase as it measures what the impacts have been from the previous 10.
But the decision by the Federal Open Market Committee to hold off on a hike at this two-day meeting came with a projection that another two quarter percentage point moves are on the way before the end of the year.

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“We have raised our policy interest rate by five percentage points, and we’ve continued to reduce our security holdings at a brisk pace. We’ve covered a lot of ground and the full effects of our tightening have yet to be felt,” said Fed Chair Jerome Powell at a news conference following the central bank decision.
The possibility of further rate increases put pressure on stocks immediately after the news broke, but encouraging talk on the fight against inflation allowed the market to rebound briefly.

A ‘hawkish pause’

The central bankers said they will take another six weeks to see the impacts of policy moves as the Fed fights an inflation battle that lately has shown some promising if uneven signs. The decision left the Fed’s key borrowing rate in a target range of 5%-5.25%.”Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the post-meeting statement said. The Fed next meets July 25-26.

Markets had widely been anticipating the Fed to “skip” this meeting – officials generally prefer the term to a “pause,” which implies a longer-range plan to keep rates where they are. The expectation leaned heavily against an increase after policymakers, particularly Powell and Vice Chair Philip Jefferson, had indicated that some change in approach could be in order.The surprising aspect of the decision came with the “dot plot” in which the individual members of the FOMC indicate their expectations for rates further out.The dots moved decidedly upward, pushing the median expectation to a funds rate of 5.6% by the end of 2023. Assuming the committee moves in quarter-point increments, that would imply two more hikes over the remaining four meetings this year. Bank of America said in a note after the meeting that it expects the Fed to move in July and September.
During the press conference, Powell said the FOMC hadn’t yet made a decision about whether another increase would be likely in July.

“People expected a hawkish pause and they got a very hawkish pause,” said David Russell, vice president of market intelligence at TradeStation. “Given the strong labor market, the Fed has room to crush inflation and they don’t want to miss their chance.”
“Still, policymakers skipped hiking rates so they can monitor the data,” he continuned. “This increases the importance of each incremental economic report. More good news like this week’s CPI and PPI could let traders look past the Fed’s tough talk and see a dovish turn later in the year. Jerome Powell is still a barking dog, but he may be losing his bite.”

Opinions vary on future hikes

FOMC members approved Wednesday’s move unanimously, though there remained considerable disagreement among members. Two members indicated they don’t see hikes this year while four saw one increase and nine, or half the committee, expect two. Two more members added a third hike while one saw four more, again assuming quarter-point moves.Members also moved up their forecasts for future years, now anticipating a fed funds rate of 4.6% in 2024 and 3.4% in 2025. That’s up from respective forecasts of 4.3% and 3.1% in March, when the Summary of Economic Projections was last updated.The future-year readings, though, do imply the Fed will start cutting rates – by a full percentage point in 2024, if this year’s outlook holds. The long-run expectation for the fed funds rate held at 2.5%.Those changes to the rate outlook occurred as members raised their expectations for economic growth for 2023, now anticipating a 1% gain in GDP as compared to the 0.4% estimate in March. Officials also were more optimistic about unemployment this year, now seeing a 4.1% rate by year’s end compared with 4.5% in March’s prediction.On inflation, they raised their collective projection to 3.9% for core (excluding food and energy) and lowered it slightly to 3.2% for headline. Those numbers had been 3.6% and 3.3% respectively for the personal consumption expenditures price index, the central bank’s preferred inflation gauge. The outlooks for subsequent years in GDP, unemployment and inflation were little changed.Fed officials believe that policy moves work with “long and variable lags,” meaning it takes time for rate hikes to work their way through the economy.The Fed began raising rates in March 2022, about a year after inflation started a dramatic climb to its highest level in some 41 years. Those rate hikes have amounted to 5 percentage points on the Fed’s benchmark to a level not seen since 2007.The increases have helped push 30-year mortgage rates over 7% and also spiked borrowing costs for other consumer items such as auto loans and credit cards.Recent data points such as the consumer and producer price indexes have shown the rate of inflation slowing, though consumers still face high costs for many items. The FOMC statement continued to note that “inflation remains elevated.”Inflation hit the U.S. economy due to multiple Covid pandemic-related factors – clogged supply chains, unusually strong demand for high-priced goods over services, and trillions in stimulus from both Congress and the Fed that had an abundance of money chasing a dearth of goods.At the same, the supply-demand mismatches in the labor market had pushed both wages and prices higher, a situation the Fed has sought to correct through policy tightening that has included both rate increases and a reduction of more than half a trillion dollars from the assets it holds on its balance sheet.
—CNBC’s Sarah Min contributed to this report. More

A man walks by a panel with the logo of Logitech on the campus of the Swiss Federal Institute of Technology of Lausanne in Lausanne, Switzerland, Nov. 27, 2019.
Fabrice Coffrini | AFP | Getty Images

Check out the companies making headlines in midday trading.
Logitech — Shares tumbled 11.1% after the company announced president and CEO Bracken Darrell is departing. Citi downgraded shares to neutral from buy following the announcement.

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UnitedHealth — UnitedHealth dropped 6.4% after Chief Financial Officer John Franklin Rex said more seniors are getting medical procedures they delayed during the Covid-19 pandemic, according to a FactSet transcript of a presentation made Tuesday at the Goldman Sachs Annual Global Healthcare Conference. It’s a trend that means rising costs for the health insurance company. Other insurers also dropped, such as Humana, which slid 13%.
Toyota — The Japan-based automaker’s shares gained 4.7% Wednesday. Shareholders reelected chairman Akio Toyoda in an endorsement of the company’s governance and new electric vehicle strategy. Toyota announced earlier in the week it would introduce a full lineup of battery electric vehicles with “next generation” batteries.
Lumen Technologies — The telecommunications stock gained 6.1% during midday trading Wednesday, adding to the 16% advance that was made Tuesday. On Monday, Lumen announced a new network interconnection ecosystem called ExaSwitch that was created in partnership with Google and Microsoft.
Maxeon Solar Technologies — The solar stock gained 0.1%. Roth MKM upgraded shares from buy to neural, noting strong demand and the potential for margin expansion ahead. Earlier in the week, the company announced a new partnership with electric vehicle software charging company ev.energy.
Advanced Micro Devices — The chip stock gained nearly 2.3% in midday trading, a day after the company announced its latest artificial intelligence chips. On Wednesday, Reuters also reported Amazon Web Services is considering using AMD’s AI chips. Several analysts were bullish, with Goldman Sachs upping its price target on AMD to $137 from $97 Wednesday, suggesting 10% upside from Tuesday’s close.

Anheuser-Busch InBev — Shares rose 1.9% after Bernstein reiterated its outperform rating. The Bud Light parent has struggled recently as its decision to work with a transgender influencer sparked conservative ire.
IPG Photonics — The laser company jumped 13.5% after Raymond James upgraded the stock to outperform from market perform. Raymond James said the company is underappreciated, specifically pointing to opportunities in the electric vehicle space.
Dave & Buster’s — Shares slid 5.8% following the company’s investor day. The sell-off comes despite Raymond James reiterating its strong buy rating following the company update. However, the firm did note some investors may take a “wait and see” approach to the stock given the potential for the health of the broader economy to affect discretionary spending.
Cinemark — The movie stock slid 6.3% on the back of a downgrade to neutral from buy by B. Riley. The firm cited its uncertain film slate, while noting the stock should have a longer-term opportunity to benefit from improvements in the domestic box office and growth in Latin America.
Li Auto — The Chinese electric vehicle maker popped 7.3% after Morgan Stanley added a positive catalyst watch on the stock, pointing to strong recent weekly shipment data and the potential for a recovery in the sector.
Netflix — The streaming giant rose 1.2% on the back of two calls from analysts. Wolfe Research reiterated shares as outperform, with the firm saying it’s bullish on the password-sharing crackdown. Though Barclays reiterated its equal rate rating, the firm raised its price target on shares to $375 from $250.
DoorDash — Shares of the food delivery company fell 2.3% after Gordon Haskett downgraded the stock to hold from buy. The firm said DoorDash’s current risk/reward profile is no longer enough to drive favorable share price reaction.
Deckers Outdoor — Shares of the outdoor apparel company jumped 3.3% to hit a 52-week high after Raymond James initiated the coverage on the stock as outperform. The Wall Street firm said it likes its wide array of products, particularly the Hoka brand, which it believes has strong momentum and is in the early innings of long-term growth globally.
Shift4 Payments — Shares advanced 0.8% following an upgrade from SVB Securities to outperform from market perform. SVB said the digital payments software name should see volume growth increase.
SoFi — SoFi gained 2.1% after BTIG names the stock a top pick in the financial technology space. The firm said shares could rally more than 45% as student loan payments resume.
Estée Lauder — Shares of the beauty stock rose 4.1% following an upgrade to buy from hold by Berenberg. The firm called the stock an attractive buying opportunity.
— CNBC’s Michelle Fox, Yun Li, Sarah Min and Hakyung Kim contributed reporting. More

The Federal Reserve on Wednesday is expected to take a break and skip another interest rate hike.
Following its two-day meeting, the central bank will release a statement along with economic and rate projections.
Chairman Jerome Powell then will hold a news conference where he’s expected to take a cautious tone and not rule out future increases.

Federal Reserve Chairman Jerome Powell holds a news conference after the release of U.S. Fed policy decision on interest rates, in Washington, May 3, 2023.
Kevin Lamarque | Reuters

On the heels of a 10-meeting streak of raising interest rates, the Federal Reserve on Wednesday is expected to take a break and let the U.S. economy catch its breath.
Markets are pricing in a high probability that central bank policymakers will “skip” — an expression they generally prefer to “pause” — at this month’s meeting as they digest the impact of 5 percentage points worth of increases going back to March 2022.

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21 hours ago

That doesn’t mean this will be the end of the hikes. It just means that with the pace of inflation waning, officials could feel this is a good time to evaluate.
“They’ve kind of set things up for a pause,” said Bill English, a former Fed official and now a finance professor at the Yale School of Management. “So they’ll probably pause, but I think they’ll very much want to avoid an outcome in markets where investors say, ‘Hurrah! The tightening cycle is over.'”
Indeed, there will be a lot of moving parts in Wednesday’s Fed action. Here’s a look at what to expect.

Rates

If the rate-setting Federal Open Market Committee does choose to pause, that will leave the benchmark borrowing rate in a target range between 5% and 5.25%.
In the market’s eyes, Tuesday’s consumer price index report, which showed the 12-month inflation rate falling to a two-year-low of 4%, cemented that decision.

However, the post-meeting statement could be massaged in a way that markets don’t assume that policymakers have gone quiescent on inflation and are set on halting the rate-hiking cycle.
“This could be a one-sided communication that they’re leaning in the direction of raising rates, but they’re not ready to commit just yet. They want some more information on how things are going,” English said. “A hawkish pause, if you like, is something that could get pretty broad support.”

The ‘dots’ and the economic outlook

If a hawkish pause indeed becomes the order of the day, that will send investors looking to the “dot plot,” a chart of individual members’ expectations of where rates are headed from here.
The general chatter — reflected in market pricing — is that the dots will “move up” and indicate an additional rate hike this year, likely at the July 25-26 meeting.
The last time the dots were updated, at the March gathering, there was a wide disparity among where members stood, with seven of 18 FOMC members expecting rates to go higher than the current range.
Along with the dots, members will update the Summary of Economic Projections, which lists the outlook for gross domestic product, the unemployment rate and inflation as gauged by the personal consumption expenditures price index. Market expectations are that the growth outlook likely will improve, even though the Fed’s own economists said in March and June that they expect a credit contraction to trigger a shallow recession later this year.
Communication from the Fed, then, likely will be, “We’re not convinced that this is the end of the rate hikes, but we want to take a look around see what kind of damage the banking crisis has inflicted on the economy,” said Mark Zandi, chief economist at Moody’s Analytics. “It also recognizes that there’s a lag between what we do and when it shows up in the economy and inflation. So we’re just going to pause here.”

The Powell presser

After the statement and projections are released, Fed Chairman Jerome Powell will be up next to field questions from the press and explain the intentions behind the actions.
There’s wide expectation that he’ll take a cautious tone, emphasizing the importance of bringing down inflation rather than focusing too much on the FOMC deciding to pass on a rate hike.
“The press conference is likely to emphasize that just because we did not hike at a given meeting, that does not mean that we’re done hiking,” said Dean Maki, head economist at Point72. “He will be very explicit about that. At the same time, I don’t think he wants to pre-commit to a July hike.”
Finding the balance between enough aggression to bring down inflation while not tanking the economy is the Fed’s ultimate goal.
History suggests that central banks that pause usually commence hiking soon after they discover that inflation hasn’t been vanquished, according to Goldman Sachs.
“We expect that any pauses will likely be driven by upside inflation surprises rather than tight labor markets given that the current inflation overshoot remains the main problem that central banks are trying to solve,” Goldman economists Giovanni Pierdomenico and Joseph Briggs said in a client note.
Powell and his colleagues generally have expressed confidence that they can control the levers of policy to bring down inflation without causing a recession. But there are no guarantees, and a recession remains the most likely case for most economists.
“The risk in continuing to raise interest rates is something will break more structurally than it has so far,” said Ed Yardeni, head of Yardeni Research. “Then they would have to lower interest rates if they cause a recession. In the past, we’ve had very few periods where the fed funds rate went up then plateaued. Usually, the Fed overdoes it.”
Correction: At the March gathering, seven of 18 FOMC members expected rates to go higher than the current range. An earlier version misstated a figure. More

Toyota cars are displayed on the sales lot at Toyota of Marin on May 11, 2022 in San Rafael, California.
Justin Sullivan | Getty Images News | Getty Images

Check out the companies making the biggest moves in premarket trading:
Toyota — The Japan-based automaker’s shares jumped about 5% after shareholders re-elected chairman Akio Toyoda to the board, in a broad endorsement of the company’s governance and new electric vehicle strategy.

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14 hours ago

Logitech International — Shares of the computer accessories company fell more than 10% after Logitech said CEO Bracken Darrell is leaving for an outside opportunity. Citi downgraded the stock to neutral from buy, saying Logitech needs to provide more clarity about its long-term plans after the leadership change.
Vodafone — The cell phone network added nearly 3% in premarket trading after Vodafone and CK Hutchison agreed to merge their U.K. businesses.
AMD — The chipmaker gained 3% premarket. On Tuesday, AMD said it will start shipping its most advanced GPU for artificial intelligence to some customers later this year. Amazon Web Services is considering using the new chips, Reuters reported Wednesday.
United Health — Shares fell nearly 6% premarket following comments by United Health chief financial officer John Rex at a conference this week that there has been elevated volumes of non-urgent surgeries in the second quarter. Other managed care companies also sank, with Humana sliding 7.5% and Cigna down 3.6%.
Lumen Technologies — Share rallied about 11%, one day after gaining 16% on news of Lumen’s new network interconnection ecosystem in partnership with Google and Microsoft.

Shell — The European oil stock was up 2.3% after Shell boosted its dividend and share buybacks and said it would keep oil production steady until 2030.
SoFi Technologies — Shares added 3.25% premarket. BTIG named SoFi as a top pick in the fintech sector as student loan payments resume. The Wall Street firm’s $14 price target implies more than 46% upside from Tuesday’s close.
— CNBC’s Hakyung Kim and Jesse Pound contributed reporting. More