The Fed Just Predicted a Fairly Lousy Economy—and the Markets Noticed
Commentary
The Federal Reserve (Fed) announced on Sept. 21 that it raised interest rates by 75 basis points (bps), or three-quarters of a percentage point.
The decision came a day after the Federal Reserve Bank of Atlanta dropped its much-watched estimate of third-quarter 2022 GDP (“GDP Now“) to just 0.3 percent on Sept. 20, after residential fixed investment disappointed, printing at -1.28 percent, when the Atlanta Fed had anticipated it to print at +0.3 percent. (Move the cursor over each bar, here, to see the interplay of the “GDP Now” elements.)
(“GDP Now” release date components for third-quarter 2022 GDP)
The 75 basis-point interest rate increase was largely priced into the market, and most observers expected it. Some anticipated—and feared—a 100 basis-point hike, or 1 percent. Nevertheless, the market responded negatively to the rate hike, and the Dow Jones Industrials Average fell by 1.7 percent. The benchmark S&P 500 Index fell the same percentage amount….