Stocks edged up early on Thursday as investors digested the Federal Reserve's first interest rate hike in three years. The central bank lifted the benchmark rate by a quarter point to 3.75%-4.00% and signalled more tightening to come.
While short-dated Treasury yields rose, longer-dated yields nudged slightly lower, suggesting investors are gaining confidence in Fed Chair Kevin Warsh's ability to do what's necessary to get inflation back down to the 2% target.
While the rate hike was in line with market expectations, the messaging was slightly more hawkish than many anticipated. Warsh oversaw a unanimous decision to raise the policy rate.
Moreover, 16 of the 18 policymakers submitting a rate projection in the so-called "dot plot" expected at least one more quarter-point hike by the end of 2026. The Fed chair, who is averse to forward guidance, did not submit a projection, though his comments after the release were decidedly hawkish.
The policy statement noted the move would "support a timelier return" to the 2% target rate. Warsh justified the hike by pointing to persistently above-target inflation, as well as recent signs of a strengthening economy.
President Trump - a longtime advocate of easing policy - responded to the move by calling once again for lower interest rates, but he stopped short of criticizing Warsh, a stark contrast from his treatment of Warsh's predecessor Jerome Powell.
There may be more bad news for the president on the rates front. Fed funds futures late on Wednesday indicated a roughly 50% chance of a hike at the central bank's next meeting in October, which would come just before the midterm elections that will decide control of Congress.
But markets appear content with the Fed's decisive move, even if the path forward is still unclear. The 10-year Treasury yield eased below 5% after initially rising slightly following the policy decision, while the 30-year nudged lower but stayed near a recent 19-year high.
Wall Street futures are also pointing higher before the bell on Thursday, after major indexes closed lower on Wednesday.
SPY•
