The Federal Reserve raised interest rates to the highest level in 22 years, and Powell warned that there would be no rate cut this year

The Federal Reserve approved a 25 basis point rate hike on Wednesday afternoon, the 11th rate hike in 17 months, bringing the federal benchmark borrowing cost to its highest level in 22 years.

Investors were watching for signs that this could be the last rate hike of the current round, as financial markets have already priced in no more rate hikes this year, even though policy makers flagged two more at their June meeting.

The S&P 500 closed essentially flat on Wednesday, while the tech-heavy Nasdaq edged lower. The Dow rose for its 13th straight session, up 82 points, or 0.2%, its longest winning streak since January 1987. BTC gained 0.8% in 24 hours to trade at $29,470. Ethereum edged up 0.5%.

Additional policy tightening

A recent Reuters poll of 106 economists showed that most respondents expected today's rate hike to be the last of this cycle, but the Fed's forecasts suggest otherwise.

Matt Kunke, a research analyst at cryptocurrency trading firm and liquidity provider GSR , noted that the central bank’s June Summary of Economic Projections (SEP) showed that the median forecast of Fed officials was for two more rate hikes this year. “The market has not fully accepted this view and continues to suggest that one rate hike (about 65%) is more likely than two rate hikes (about 27%),” Kunke said.

Powell said at a news conference that the central bank has not made any decisions about future rate hikes, but he made clear that the fight against inflation is not over.

Data released by the U.S. Department of Labor showed that the year-on-year inflation rate in June was 3%, a sharp drop from the peak of 9.1% in June 2022. However, the "core" inflation measure favored by the Federal Reserve - which excludes volatile food and energy costs - was still 4.6% in May from the same period last year.

The Fed's post-meeting statement showed: "The committee will take into account the cumulative tightening of monetary policy, the lags in the impact of monetary policy on economic activity and inflation, and economic and financial developments."

Some Fed officials, including board member Christopher Waller and Dallas Fed President Lorie Logan, have said they believe the cumulative effects of previous rate hikes have been baked into the economy, and with inflation still above the Fed’s target, they believe further rate hikes may be needed to further ease price pressures.

Fed Chairman Jerome Powell reiterated this during a press conference, saying a further rate hike could come in September if the data warrants it. "We may choose to hold steady at that meeting, but as I said, we'll evaluate that carefully on a meeting-by-meeting basis," he said.

Rate cut unlikely this year

Powell also mentioned that inflation has slowed since the middle of last year, but there is "still a long way to go" to reach the Fed's 2% target. He believes that the economy will achieve a soft landing and is unlikely to cut interest rates this year.

Powell noted that some Federal Open Market Committee participants have built next year’s rate cuts into their economic forecasts, but he said “that’s a judgment we have to make about how confident we are that inflation will actually fall to our 2% objective.”

Powell remains confident the Fed can reduce inflation without causing a sharp economic downturn, although he said it is "a long way from being certain."

On the topic of rate cuts next year, Powell said it would be a "judgment call" they make based on their level of "confidence."

How do professionals interpret it?

Gurpreet Gill, global fixed income macro strategist at Goldman Sachs Asset Management, said on Wednesday that any new signs of inflation could mean the Fed 's path to rate hikes will be extended. Given the uncertainty over the end of this rate hike cycle, Gurpreet Gill said that if more progress is made in reducing inflation, it will limit the rise in U.S. Treasury yields. If inflation continues to cool, the 10-year Treasury yield may even fall. However, a strong labor market and economy will slow down the potential decline in yields.

Gurpreet Gill said: "Today's Federal Reserve meeting is one of the most certain and most uncertain meetings in this cycle. The 0.25% rate hike has been fully digested and widely expected by forecasters and investors. However, investors are still divided on whether this marks the last rate hike in the current tightening campaign."

Goldman Sachs said in a note to clients that the Fed's statement does not mean a slowdown in future rate hikes, but the bank expects a rate hike in September.

“The message to the market is that it didn’t move the needle,” said Angelo Kourfafas, investment strategist at Edward Jones. “There’s always the fear of a big surprise.”

Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, said Powell's message was clearly that the Fed will wait and see economic data to make new decisions. "I don't think the Fed will stop unless they see wage inflation coming down."

“Where the market has mispriced in is in the expectation of a big rate cut next year,” said Phillip Colmar, global strategist at MRB Partners. “If anything, further rate hikes will be needed.”

“The statement leaves the door open for another rate hike if the data-dependent Fed deems it necessary, but the tone of the statement was more neutral than overtly dovish or hawkish,” said Quincy Krosby, chief global strategist at LPL Financial.

Lex Sokolin , managing partner at Web3 investment fund Generative Ventures , said the Fed’s statement “doesn’t change the narrative associated with crypto. We are already in a risk-off environment. Things could become more catastrophic with a Russia-Ukraine war or a U.S. recession, but valuations in tech and financials are pretty stable, while AI is probably an outlier.”

Sokolin expects “a few more rate hikes,” but “the hardest work, absorbing the COVID supply chain shock and the associated money-printing subsidies, has been done.”