The major indexes spent most of the day bouncing around as investors awaited the mid-afternoon release of the minutes from the Federal Reserve’s June policy-setting meeting, where the central bank issued its first 75 basis-point rate hike in nearly three decades. A basis point is one-one hundredth of a percentage point.
The meeting minutes revealed that another hefty rate hike is likely coming when the Fed meets later this month (July 26-27) as the central bank tries to tame red-hot inflation. Specifically, the minutes suggested that “an increase of 50 or 75 basis points would likely be appropriate at the next meeting.”
Additionally, the minutes indicated Fed officials believed the current economic outlook “warranted moving to a restrictive stance of policy,” while leaving the door open to “an even more restrictive stance” should high levels of inflation persist. Translated: ongoing rate cuts, larger rate cuts, more bond selling or some combination thereof.
“The Fed minutes’ primary message is, by now, what the parade of Fed speakers since the last meeting have emphasized, that ‘more restrictive’ policy measures will be needed if inflationary pressures do not ease markedly,” says Jamie Cox, managing partner for Virginia-based Harris Financial Group. “Markets have received the message loud and clear.”
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“What got my attention was the reference to a potential pause at year-end,” says Cliff Hodge, chief investment officer for North Carolina-based Cornerstone Wealth. “This is new, and extremely important. ‘Participants noted that, with the federal funds rate expected to be near or above estimates of its longer-run level later this year, the Committee would then be well positioned to determine the appropriate pace of further policy firming and the extent to which economic developments warranted policy adjustments.’ They were already thinking about where the appropriate level is to stop tightening policy in June, before the spate of economic data really deteriorated.”
Stocks continued to wobble immediately following the release of the Fed minutes before taking a confident turn higher. By the close, the Nasdaq Composite was up 0.4% at 11,361, the S&P 500 Index was 0.4% higher at 3,845 and the Dow Jones Industrial Average had added 0.2% to end at 31,037.
And as the broader stock market gained ground, U.S. crude futures continued to decline, sinking 1% to settle at $98.53 per barrel. This officially put crude oil futures into bear-market territory, with today’s closing price off 20.3% from their March 8 settlement high of $123.70 per barrel.
Other news in the stock market today:
- The small-cap Russell 2000 gave back 0.8% to end at 1,727.