Fed June rate hike odds jump after policy statement
The odds of an interest rate hike by the Federal Reserve at its June meeting moved sharply higher following the release of the central bank's policy statement in which it brushed aside the importance of weaker than expected first quarter GDP figures.
At the end of their two-day meeting, rate-setters on the Potomac said job gains had been "solid, on average, in recent months".
Slow economic growth during the first quarter is likely to prove "transitory" and with gradual adjustments in the stance of monetary policy inflation will stabilise around 2.0% over the medium-term, they added.
"The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation."
"The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal," the central bank said in a statement.
Traders apparently took Wednesday's policy announcement to mean that the central bank was still firmly on course to hike rates again next month, pushing the market implied odds of a 25 basis point interest rate hike from the Fed at its 14 June meeting to 94% from roughly 70.7% beforehand.
"The FOMC statement was hawkish and the Fed has clearly given a message to the markets that they think the weakness in the economic data is only temporary. This means that the Fed is more than happy with their current strategy and more rate hikes are coming this year - at least for now," said Naeem Aslam, chief market analyst at Think Markets.
On a slightly more cautious note, Neil Wilson, senior market analyst at ETX Capital, said: "The Fed is in no rush to raise rates too quickly as it’s fully aware that rising inflation is less of a threat than tightening too fast, noting that it will stabilise around its 2% target. On the whole, today’s decision changes very little in the assessment for monetary policy. All eyes now on the minutes from the meeting and jawboning from officials in the coming weeks."
As of 1938 GMT, the yield on the benchmark 10-year US Treasury note was up by three basis points to 2.31%, alongside a 0.25% dip in the S&P 500 to 2,385.37.