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The Fed hiked the Funds Rate by 75bps as expected by the markets. In a slightly positive tone, the new dot plot provided is 3.4%, lower than the 3.8% investors anticipated and suggesting the Fed plans to cut rates in 2024. Interesting to note that one FOMC member (George) that is known to be a hawk, voted for only a 50bps hike. In a strange twist, investors have anxiety that the Fed is not doing enough to curb inflation.

Wholesale prices rose 10.8% in May, near a record annual rate. As highlighted last Friday, a surge in energy prices in May compared to a year ago is a major contributor to inflation across various contributors to readings. Excluding food and energy, PPI rose 0.5% on the month, below the 0.6% forecast. Stocks are slightly up on the news. Notes from major US banks point out that it is too early to jump in to buy stocks tactically. Nonetheless, sentiment can change quickly, and depend on the Fed / FOMC outcome on Wednesday, markets could take a turn for the better. The consensus is for markets to continue lower, after breaking technical support levels. A contrarian perspective suggests markets could be in the process of capitulating as sellers' exhaustion sets in after the S&P500 has erased a staggering 9% in the space of 3 days, entering a bear market (-21.5% year-to-date).

US central bankers will conclude a two-day meeting on Wednesday and announce the interest rate decision, where it is expected to hike by at least 50 bps and consider a 75bps, after inflation data last week came higher than expected. Investors did not wait for the decision to re-price a more aggressive Fed. The spiking yields led to a 3-day fall of 9% for the S&P500, slipping below its technical support of 3'810. It puts 3'500-3'600 as a firm possibility and the next few days may bring high volatility as markets attempt to price interest and growth trajectories. 

US 10-year yields are revisiting highs from late 2018, as money markets are pricing 75 basis points by the Fed's September decision, implying two 50 bps and one 75 bps rate hike, according to interest rate swaps tied to FOMC policy outcome dates. More worrying the US 2 and 10-year yields are close to inversion as the 2-year yield is close to 3.2% and 10 year is at 3.25%.

Core CPI data came out slightly worst than expected with a year-over-year price increase of 6% versus 5.9% expected and 0.6% month-over-month versus 0.5% expected. Headline CPI made a new high at 8.6% versus 8.3% expected, worrying investors of sticky inflation that may last longer and trigger the Fed to pursue more aggressive tightening measures to reign in demand and in turn inflation. Markets doubt the Fed can avoid a recession if it follows aggressive interest rate hikes. US stocks reacted with a swift selloff of around 1%, on top of the steep decline of the night before. 2-year yield surged above 2.9%, while the 10-year held steady at 3.02%. It remains to be seen if downward growth and earnings revisions will continue amid a more and more uncertain environment and soaring price pressures.