On Wednesday, September 20th, the Federal Reserve stayed put as expected, keeping the benchmark interest rate unchanged at the highest level in 22 years, ranging from 5.25% to 5.50%. The decision statement indicated that the pace of job growth has slowed but remains strong.
The dot plot shows that the expected federal funds rate at the end of 2023 will remain at 5.6%, but it is projected to be 5.1% at the end of 2024, with an estimate of 4.6% in June. The rate expectations for 2025 and beyond have also increased.
Nick Timiraos, a financial journalist known as the &#34;Fed Whisperer,&#34; stated that the median of the dot plot indicates that Fed officials believe there will be one more rate hike before the end of the year, followed by two rate cuts next year, which is far fewer than the previously expected 100 basis points or four rate cuts in June.
After the Fed's decision was announced, the market's bet on a 25 basis point rate hike in November increased slightly from 29% to 31%, while the bet on skipping November and raising rates again in December rose from 35% to 39%.
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Earlier analysis suggested that the recent surge in oil prices has intensified inflationary pressures and raised expectations that the Fed will maintain higher rates for a longer period of time. Fed Chairman Powell may reiterate the policy inclination of &#34;pausing rate hikes&#34; during the press conference.
After the Fed's decision was announced, the Nasdaq fell further, the S&amp;P turned negative, and the two-year Treasury yield reversed its intraday decline and rose, while the U.S. dollar strengthened:
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The Dow's gains were cut in half to less than 100 points, the S&amp;P 500 turned negative, and the Nasdaq's decline deepened to 0.5%. Some analysts believe that this is due to the Fed's suggestion that higher rates will be maintained for a longer period of time.
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The two-year Treasury yield rose by 6 basis points in the short term, hitting a daily high above 5.12%, reversing its intraday decline and rising more than 2 basis points from the previous day's close, with a pre-announcement level of 5.06%. The 10-year Treasury yield erased most of its losses and approached the flat level, nearing 4.35%.
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The U.S. dollar index (DXY) significantly narrowed its decline and rose back above the 105 level. Spot gold's gains narrowed to 0.5%, but it remained above the $1940 level.
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5 minutes before the Powell press conference, the Dow Jones' gains expanded to 140 points or 0.4%, while the S&amp;P 500 maintained a slight downward trend, the Nasdaq fell by 0.4%, and the Russell small-cap stocks' gains narrowed further to 0.3%.
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The two-year U.S. Treasury yield rose more than 1 basis point to 5.12% intraday, while the 10-year benchmark bond yield fell 2 basis points to less than 4.35%. The U.S. dollar index fell 0.1% to 105.06, and spot gold rose 0.6% to $1942.
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Powell stated during the press conference that the overall effects of the current tightening cycle have not yet been felt. The Federal Reserve will make decisions based on the latest data and proceed cautiously with interest rate adjustments. The current monetary policy stance is restrictive for U.S. economic activity.
However, he also mentioned that although long-term inflation expectations remain well anchored, there is still a long way to go to achieve the 2% inflation target. If conditions are appropriate, the FOMC is prepared to raise interest rates again:
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The Dow Jones' gains expanded to nearly 200 points, the S&amp;P 500 turned positive, and the Nasdaq's decline halved to 0.2%.
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However, within 20 minutes of the press conference, the S&amp;P 500 turned negative again, the Nasdaq fell by 0.4% again, and the Dow Jones rose by 140 points.
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The two-year U.S. Treasury yield briefly fell below 5.08%, and after the release of the Federal Reserve's statement and dot plot, it rose to 5.1480%. The 10-year benchmark bond yield widened its decline to over 3 basis points to less than 4.34%.
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The U.S. dollar index fell 0.2% to the 105 level, while spot gold maintained a 0.6% gain and held above the $1940 level.
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Before the Federal Reserve's decision was announced, the Nasdaq remained in a downward trend, U.S. bond yields retreated from a 16-year high, and the U.S. dollar fell while gold rose:
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U.S. stocks opened slightly higher, with the S&amp;P 500 up 0.4% at the beginning of the session. Nearly an hour after the market opened, the Nasdaq, which is dominated by technology stocks, and the Nasdaq 100 turned negative, while the Russell small-cap stocks' gains expanded to nearly 1%. At midday, the Dow Jones rose nearly 260 points to the daily high, the S&amp;P's gains narrowed, and the Nasdaq remained in a downward trend.
Five minutes before the announcement, the Dow rose 200 points or 0.6%, the S&amp;P 500 rose 0.2%, the Nasdaq fell 0.1%, and the Russell small-cap stocks rose 0.4%.
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During the midday session, US bond yields collectively fell by 5 basis points. The two-year yield, which is more sensitive to monetary policy, had a deeper intraday decline, previously falling nearly 6 basis points to approach 5.05%. Yesterday, it had risen above 5.10% and approached the highest level since 2007.
The 10-year Treasury yield also fell from yesterday's highest level since November 2007, with a maximum decline of 5 basis points to 4.32%. Yesterday, it had risen above 4.37%. Bank of America said that the Fed's dot plot showing rate cuts in 2024 will affect the trend of the 10-year Treasury yield.
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The DXY, which measures the US dollar against a basket of six major currencies, fell 0.4% to 104.76, previously falling as much as 0.5% and breaking below the 105 level, erasing last Thursday's gains when it reached a six-month high of 105.43.
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Spot gold rose by a maximum of 16 US dollars or 0.8%, breaking above the $1940 level and hovering around the intraday high of $1947, reaching the highest level in nearly three weeks since September 1st.
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After the announcement of the Fed's decision, the Dow Jones Industrial Average's gains were cut in half to less than 100 points. The short-term yield on 2-year US Treasury bonds rose by 6 basis points, reaching a daily high above 5.12%. The US Dollar Index (DXY) narrowed its decline significantly and rebounded above 105. During Powell's press conference, the S&P 500 fluctuated between gains and losses, while the Nasdaq remained in a downward trend. The yield on 2-year US Treasury bonds briefly turned negative, and spot gold remained above $1940.

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The unexpected hawkish stance of the dot plot led to a deeper decline in the Nasdaq, with the S&P turning negative, while the 2-year Treasury yield reversed earlier losses.