June 14, 2023 – Fed pauses rate hikes; stocks rally; economic outlook

 

Welcome to the June 14, 2023, issue of Business News Digest by Simple Finance and Economics. The highlights of this issue: Federal Reserve pauses rate hikes, U.S. stock market outperforms, and the economy’s outlook.

Fed pauses rate hikes

The Federal Reserve elected to temporarily halt its pattern of interest rate hikes as a measure to address persistent inflationary pressures. This pause is considered a short-term decision, enabling the central bank to gather and assess additional data before determining the necessity of future rate increases. While U.S. overall inflation has seen a cooling trend, primarily due to decreasing energy prices, the core inflation rate—which excludes volatile sectors like energy and food—remains elevated, indicating the possibility of future rate hikes by the Federal Reserve.

The central banking systems of both Australia and Canada have previously implemented similar pauses in rate hikes, before resuming them in response to sustained inflation.

Stocks rally

Concurrent with the Federal Reserve’s decision to pause rate hikes, the U.S. stock market displayed a strong performance. The S&P 500 Index entered a bull market before the Federal Reserve’s announcement and achieved a new 52-week high subsequently. Other major indices, including the Dow Jones Industrial Average and the Nasdaq, also recorded increases in recent days.

The technology sector, represented by Meta Platforms, Alphabet, Nvidia, and Apple, noted significant growth, with Apple approaching a market value of $3 trillion.

Economic outlook

After announcing the decision to pause rate hikes, the Federal Reserve released its “dot plot,” a graphical representation predicting the likely trajectory of future rate changes. This projection indicated that 12 of the 18 members of the Federal Open Market Committee expect at least two more rate hikes within the year, a prospect that initially led to investor disappointment. Despite this, the FOMC also adjusted its forecast for GDP growth upwards and unemployment rate downwards, reflecting a positive outlook for the U.S. economy. Federal Reserve Chairman Jerome Powell reiterated the institution’s commitment to achieving a decisive reduction in inflation, with the long-term aim of reaching the 2% target.

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