US Fed Meeting Live Updates: FOMC likely to deliver ‘hawkish pause’ amid sticky inflation; US stocks rise, gold subdued

Wall Street stocks advanced early Wednesday ahead of the Fed Reserve policy outcome later today. The market is betting heavily that the US central bank will hold steady on rates, but the focus will be on whether Fed Chair Jerome Powell signals a high chance of another rate hike this year.

About 25 minutes into trading, the Dow Jones Industrial Average was up 0.4 percent at 34,660.68. The broad-based S&P 500 gained 0.3 percent to 4,458.71, while the tech-rich Nasdaq Composite Index jumped 0.3 percent to 13,719.06.

Gold prices were subdued on Wednesday as investors remained cautious ahead of the Federal Reserve’s policy decision, where the central bank is expected to stay put on interest rates, but prospects loom for further hikes later this year. Spot gold was steady at $1,930.19 per ounce, holding below its highest level since September 5 reached on Tuesday. US gold futures eased 0.1 per cent to $1,950.90.

US bond yields surged to 16-year high levels and fears of high crude oil prices fueling commodity inflation also hit the investor sentiment, according to analysts. Fresh foreign fund outflows and caution ahead of a host of interest rate decisions from global central banks also added to the overall bearish trend. Besides the US Fed meeting, the BoE (Bank of England) and the BoJ (Bank of Japan) are also scheduled to meet this week.

Ahead of the US Fed policy outcome, foreign institutional investors (FIIs) cumulatively bought ₹15,769.17 crore of Indian equities, while they sold ₹18,879.86 crore — resulting in an outflow of ₹3,110.69 crore, according to NSE data.

The US economy has remained solid despite the Federal Reserve’s aggressive tightening in the last one and half year. Higher borrowing cost could lead to a situation like ‘hard-landing’; which currently looks out of sight as economic numbers have been beating estimates. 

Demand across the US economy remains firm and that remains one of the key reasons to dodge a recession. Retail sales number in the last few months also suggest that there has been sustained recovery.  Also, recent economic data is showing warning signs that higher interest rates may finally be starting to take a toll on the labor market.

After 11 interest rate hikes since March last year, inflation in US has fallen sharply but remains stuck stubbornly above the Fed’s long-run target of two percent per year — keeping pressure on officials to consider further policy action. Despite rising slightly on energy costs, inflation remains well below last year’s peak, while economic growth remains robust and the unemployment rate sits close to record lows — raising hopes the Fed can slow price increases without triggering a downturn.

US equity futures edged higher as traders awaited a Federal Reserve interest rate decision that will be scrutinized more for the policy outlook than a widely expected pause in hikes. In Europe, stocks rose and the pound weakened after British inflation slowed unexpectedly. Sterling fell as much as 0.5 per cent against the dollar to its lowest level since May as traders bet that the Bank of England is nearing the end of its hiking cycle, according to Bloomberg News.

In the upcoming meeting market participants have discounted that the central bank is expected to take a pause and is going to be narrative of the Fed governor that will drive a move in currencies, commodities and US treasuries, according to domestic brokerage Motilal Oswal.

Inflation has been the key measure to evaluate central bank action and focus on growth has taken a back seat. Inflation has retraced in last few months after hitting the highest in September 2022, but the question remains that will inflation recede further or will it turn around and continue to move higher?

The FOMC will also update its long-term economic growth projections, which include forecasts for GDP growth, unemployment rates, interest rates and inflation. The impact of Fed tightening is still having a negative effect on the economy and caution is warranted as growth is slowing. 

Investors are betting that the Fed could be nearing its rate-hiking cycle, assigning just a 30 per cent chance to a November increase. If the chair does anything to disabuse the market of that sentiment, it would be meaningful, according to domestic brokerage firm Motilal Oswal.

Today, the Federal Reserve is expected to keep rates unchanged and will continue to roll-off its $8.1 trillion balance sheet. The central bank will continue to allow up to $60 billion in Treasury securities and $35 billion in agency mortgage-backed securities (MBS) to mature and roll off its balance sheet per month, said the brokerage.

Sensex and Nifty settled with losses on Wednesday, September 20, extending the decline into the second consecutive session amid mixed global cues ahead of the US Fed policy outcome.
Sensex closed with a loss of 796 points, or 1.18 per cent, at 66,800.84 while the Nifty ended below the 20,000 mark at 19,901.40, down 232 points, or 1.15 per cent.

The outcome of the US FOMC meeting for September 2023 will be crucial in determining the benchmark lending rates in the US. The meeting outcome is set to be released on September 20, at 2 pm Eastern Time, or 11:30 pm Indian Standard Time

The market might have discounted the possibility of a pause by the Fed in September. So, the market may not react to the move. However, the Fed Chair’s commentary on the inflation trajectory and growth will be closely observed by the markets.

“Investors will analyse the outcome and the accompanying comments for hints about the probable timing of the rate hike cycle and the Fed’s view on the job markets, inflation and economic growth,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

Jasani said global markets, including India, are expecting the US Fed to maintain rates at their September 19-20 meet and hence if it comes true, by itself it may not impact their trajectory. However in case there is any surprise (positive or negative) in the Fed’s commentary, then it could have an impact on Indian markets, though less than that in other developed economies. Read here

The US Federal Reserve is widely expected to keep its current interest rates unchanged during the meeting on September 19-20 despite persistent inflation levels exceeding the central bank’s target range while the US economy remains resilient. The US Fed has been raising rates since March 2022 and this could be the second time since then that the Fed may maintain a pause on interest rate hikes. While a pause seems highly likely, the possibility of a rate cut is extremely feeble at this juncture.

Markets across the globe will closely watch what the US Fed Chairman Jerome Powell says about inflation and the US economy.

The US Federal Reserve Chairman Jerome Powell-led Federal Open Market Committee (FOMC) will announce its September monetary policy decision today. The two-day FOMC meeting began on September 19 and will end today.