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What you need to know today
Pause and play
The Federal Reserve left interest rates unchanged, as widely expected. But the updated dot plot, or Fed members' projections of rates in the future, imply two further hikes, bringing rates to 5.6% by the end of this year.
The rally paused too
The S&P 500 finished nearly flat, while the Dow Jones Industrial Average dipped 0.68% and the Nasdaq Composite rose 0.4%. But Asia-Pacific markets were unbothered by rates shocks and mostly rose Thursday. Japan's Nikkei 225 added 0.4% as the country's exports rose 0.6% year over year, beating expectations for a 0.8% slowdown.
China cuts rates
The People's Bank of China lowered a key medium-term policy rate for the first time in 10 months, following another cut to its short-term loan rate this Monday. The central bank is trying to stimulate China's flagging economy — recently released economic data disappointed, with the youth unemployment rate shooting up to 20.8% in May.
Recession hits another economy
New Zealand's first-quarter GDP shrank 0.1%; its GDP in the fourth quarter last year declined 0.7% after revising numbers. That makes two consecutive quarters of contraction, marking the country's slide into technical recession.
[PRO] Brake, or break
DoubleLine Capital CEO Jeffrey Gundlach warned that the Fed is "going to break something" if it follows through on its expectations to continue raising rates later this year. The U.S. economy is already brittle, Gundlach said, so it makes more sense to hit the brakes on rate hikes.
The bottom line
Don't see the Fed leaving interest rates unchanged as something positive.
It's a "hawkish pause," as so many analysts pointed out, meaning that the Fed might still swoop in with more hikes later this year — as the central bank itself projected. To use more animal imagery, when thinking about the Fed's decision this meeting, perhaps the bank's not so much a hawk, but a tiger stalking its prey — it freezes, pauses, before pouncing and killing.
The metaphor works in more ways than one. Prominent investors and economists are warning that the Fed might be overzealous in its tightening campaign, and will render lifeless an economy that's already fading. "There are so many indicators that are deeply in recessionary territory," Gundlach said. Indeed, Wharton professor Jeremy Siegel's "worried about whether [the Fed] stop[s] soon enough."
Fed Chair Jerome Powell, as if aware of the worries, did soothe nerves at his press conference. He noted that "the conditions that we need to see in place to get inflation down are coming into place." And if inflation does indeed fall further, Powell suggested the Fed might deviate from its projections and keep rates steady. July's Federal Open Market Committee "will be a live meeting," because "a decision hasn't been made," Powell said.
For investors feeling like vulnerable prey, then, there's a chance the Fed might decide to walk away in the end. But even if the Fed doesn't hike in July, it's likely to hold rates steady for the rest of the year. Still, considering the resilience of the economy in the face of 5% rates, markets may yet live.
