“Continuous Increases” to keep track of the most recent price increase; The S&P 500 is crashing hard

Today’s Federal Reserve meeting statement reiterated policymakers’ plan for “continued increases” in the US central bank’s key interest rate. Since the Fed’s rate-setting committee announced a quarter-point move, the wording suggests two more hikes are likely. The S&P 500 held up, falling modestly after the Fed’s statement was released at 2pm ET.

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Federal Reserve Chairman Jerome Powell will discuss the policy outlook and the state of the US economy at his press conference at 2:30pm. Powell may point out that inflation has not yet fallen convincingly enough for the Fed to stop raising interest rates. However, investors will be aware of any hint that additional evidence of easing inflation and waning wage growth could prompt the Fed to pause interest rate hikes after perhaps again on March 22nd.

March Fed meeting forecast

Ahead of the Fed meeting, markets were betting that the Fed would pause rate hikes after next month, with the key overnight lending rate in the 4.75% to 5% range. This is lower than the 5%-5.25% range expected by federal policymakers in December.

Investors became convinced about a faster end to rate hikes after relatively weak wage growth data was released on Tuesday. As of Wednesday afternoon, markets were forecasting a 16% chance that today’s rate hike would be the last, according to CME Group. FedWatch page.

The odds of further increases in March and May dropped to 41%.

Jobs and wage data are basic

On Tuesday morning, the Labor Department’s Employment Cost Index showed compensation costs rising 1% in the fourth quarter versus the expected 1.1%. However, compensation increased 5.1% from a year ago, up slightly from the 5% growth in the third quarter.

Economists pay close attention to wage growth for private sector workers, excluding those in paid occupations, as a good indicator of underlying wage growth. In the fourth quarter, wages in this category increased 0.9%, or an annualized pace of 3.6%. This measure excludes occupations for which the pay is commission-driven, which may be more affected by periodic highs and lows. The importance of the ECI report has increased as the Fed emphasized the need for lower wage growth to bring inflation back to the 2% target. Powell said easing wage growth to 3.5% would be enough.

However, after the good news about wage growth, a Labor Department report today showed that job openings jumped unexpectedly by 572,000 to just over 11 million in December.

Powell repeatedly highlighted the surplus of job opportunities for unemployed workers as a major reason for the unusually strong wage growth. In December, the ratio of job vacancies to unemployed workers rose to 1.9 from 1.7, well above the pre-Covid peak.

With both consumer spending and manufacturing showing signs of weakness, Friday’s January jobs report will provide more evidence of whether the last major source of strength for the economy has faded. Analysts expect strong gains from 185,000 jobs, but average hourly earnings growth is expected to ease to 4.4% from 4.6% in December.

S&P 500 setup

Wednesday afternoon The work of the stock marketThe S&P 500 fell 0.3% shortly after the Fed meeting announcement, about where it was before the 2pm ET announcement. This followed Tuesday’s gain of 1.5% for the S&P 500 after tamer ECI data. During Tuesday’s close, the S&P 500 was up 14% from the bear market’s closing low of Oct. 12, but it was still 15% below its all-time high.

On Friday, the S&P 500 peaked around 4,094, posting a third run at the clearing of 4,100 since the beginning of December. This is the key level to watch right now. The S&P 500 closed Tuesday at 4076.60, near its high for the day.

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