Fed raises interest rate by 75 bps for second consecutive time 

The Fed raised its benchmark interest rate by 75 bps as the market expected. The increase takes the fed funds rate to its highest level since December 2018, when Powell’s tightening monetary policy was widely criticized by the market and President Trump. 

Fed officials acknowledged signs of a slowdown in economic activities since June’s meeting. In its post-meeting statement, the FOMC cautioned that “recent indicators of spending and production have softened.” Fed’s Chairman Powell told reporters that he does not believe the US is in a recession, claiming that the labor market remains strong, and the recent increase in initial jobless claims may be the result of seasonal adjustments.

Powell said there will be a point where the Fed starts to slow hikes to assess their impact. But he said that the Fed can no longer provide clear guidance on the path of future interest rate hikes, and the central bank will pay close attention to the economic data to determine the direction of monetary policy. While in comparison, Powell said in June that the central bank would raise rates by 50 or 75 bps during the July meeting.

What’s next?
Inflation, mainly driven by oil prices and imbalances in production and workforce, has plagued policymakers for months, becoming the economy’s biggest problem and burden on families nationwide. Moreover, oil prices have decreased over the past months, weekly unemployment data has been increasing over the past weeks, and recession fear is rising among investors, consumers, and companies.

There are still 2 months until the next FOMC meeting, and there is still enough time for Fed officials to wait and see if inflation will ease. The inflation data in July and August will be vital for decisions on further monetary policy. And if oil prices keep decreasing at the current pace, a slowdown in policy tightening is highly possible for the next meeting.

#1. US economy shrinks in second consecutive quarter

• GDP fell by 0.9% in Q2, compared to analysts’ forecasts of +0.4%. GDP had already fallen by 1.6% in Q1. This marker is traditionally understood as a sign of economic recession and is also termed a “technical” recession by economists. 

• The Biden administration denies the public’s fears, citing a strong job market and solid consumer spending as “not consistent with recession.”

#2. Walmart cuts profit outlook; stock tumbles

• Walmart issued a surprise earnings warning on Monday after market, a second one in 10 weeks.

• While CEO Doug McMillon commented that the company has made good progress clearing built up inventory, he also stated “inflation…is affecting how customers spend.”.

• The company saw its share prices fall by 9.2% to $120 on Tuesday morning before recovering back to $126.59 at close by Wednesday.

#3. Google and Microsoft stocks jump after positive earnings reports

• Both companies saw their share prices rise on Wednesday after their positive Q2 reports —despite both missing EPS guidance.

• Google rose by 7.66% to $113.06 after beating analysts’ expectations on ad sales amid a spending crunch in online marketing.

• Microsoft likewise swelled by 6.69% to $268.74 after issuing a strong financial guidance for FY 2023, reiterating the Q1 statement. Microsoft CFO announced, “We continue to expect double digit revenue and operating income growth.”

#4. Schumer, Manchin announce climate spending deal

• The package included a record $369bn for climate and clean energy provisions. Solar stocks jumped in pre-session trading.

• Senate Democrats planned to meet behind closed doors on Thursday morning to back this climate, tax, and healthcare deal.

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