NEW YORK- US Treasury yields were lower on Wednesday in choppy trading after the Federal Reserve left interest rates unchanged, as widely expected, but forecast another 50 basis points in hikes by the end of the year.
The central bank kept rates at the 5.00 percent-5.25 percent range but in its new summary of economic projections (SEP) indicated a stronger-than-expected economy and a slower decline in inflation will result in a likely rise in borrowing costs by 50 basis points (bps) by the end of this year.
“They finally lowered their unemployment rate a little bit, they raised their GDP a little bit and they raised their inflation so they are really catching up with what the data is already telling us,” said Ellen Hazen, chief market strategist at F.L.Putnam Investment Management in Wellesley, Massachusetts.
“The biggest surprise for me, the federal funds rate December projection all the way up to 5.6 percent, so a whole 50 basis point increase, I think the market was expecting 25 bps.”
Yields pared earlier declines after the announcement but reversed course and moved lower once again as Chair Jerome Powell spoke after the statement and said that July’s meeting would be “live” after the decision to hold rates steady today.
“Powell is doing an excellent job walking the monetary tightrope, staying close to the center and being balanced. He’s acknowledged that inflation is edging lower and said the skip was ‘prudent,’” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.
