[New York Stock Exchange] Warsh's First FOMC Delivers Hawkish Tone... Markets Close Sharply Lower

US Treasury Yields Surge

Dot Plot Signals At Least One Rate Hike This Year

Tech Stocks Lead the Decline

International Oil Prices Close Higher

On June 17 (local time), all three major U.S. stock indexes closed lower on the New York Stock Exchange. This came after the first Federal Open Market Committee (FOMC) meeting led by Federal Reserve (Fed) Chairman Kevin Warsh, in which the benchmark interest rate was held steady for the fourth consecutive time, but a distinctly hawkish tone was evident. The Fed removed the phrase "easing bias" from its statement, and of the 18 policymakers who submitted dot plots, half projected at least one rate hike within the year. As a result, U.S. Treasury yields surged, and the stock market, which had been mixed during the press conference, turned broadly negative.

On the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 51,492.55, down 507.12 points (0.98%) from the previous trading day. The large-cap S&P 500 Index fell by 91.25 points (1.21%) to finish at 7,420.10, while the tech-heavy Nasdaq Composite plunged 354.68 points (1.35%) to close at 26,021.65.

On this day, market attention was focused on the FOMC. The Fed announced it would keep the benchmark rate at the existing annual range of 3.50–3.75%. The decision was unanimous, with 12 votes in favor and none opposed, in contrast to the previous April meeting, where four members voted against.

The most notable change in this statement was the removal of a policy signal. The phrase "additional adjustments," which remained in the March and April statements, was omitted, leading to interpretations that the Fed has withdrawn its prior signal leaving the door open for rate cuts.

Instead, the Fed stated, "Inflation partly reflects supply shocks that have caused price increases in some sectors, including energy, and still exceeds the Committee's 2% target," adding, "The Committee will deliver price stability."

Unlike the March and April statements, which emphasized a strong commitment to supporting maximum employment and returning inflation to the 2% target, this time the message of price stability was placed front and center.

Jeffrey Gundlach, CEO of DoubleLine Capital, said, "Chairman Warsh made it clear that he intends to achieve price stability," adding, "This means they will not pursue the dovish monetary policy everyone was expecting."

Kay Haigh of Goldman Sachs Asset Management commented, "The Fed's recent hawkish stance is not solely due to rising energy prices," and added, "Despite the recent drop in oil prices, half of the FOMC members expect a rate hike within this year, reflecting the strong labor market and inflation indicators."

Inside the New York Stock Exchange. New York, USA - Photo by Yoonju Hwang

Yields on U.S. Treasury bonds surged. The yield on the two-year Treasury note rose by 16 basis points (1bp=0.01 percentage point) to 4.216%. The U.S. dollar also strengthened.

International oil prices rose as well. On the New York Mercantile Exchange, West Texas Intermediate (WTI) crude for July delivery settled at USD 79.55 per barrel, up 0.85% from the previous session. On the ICE Futures Exchange, Brent crude for August delivery closed at USD 76.79 per barrel, up 0.97% from the previous session.

With the Fed's hawkish stance dampening investor sentiment, technology stocks led the decline. Microsoft fell 3.79%, Meta dropped 5.44%, Apple slipped 1.10%, and Amazon declined 3.46%. SpaceX, for the first time since its listing, also trended downward, closing 4.95% lower than the previous session.

Claudia Sahm, chief economist at New Century Advisors, said, "The current market reaction is mainly due to the much more hawkish dot plot," adding, "The outlook for inflation has changed significantly."

James McCann of Edward Jones stated, "With recent easing tensions in the Middle East and falling oil prices alleviating inflation risks, the Fed is expected to keep rates steady this year," but added, "However, after today's meeting, the bar for a rate hike appears to be lower."

On the other hand, some believe there will be no rate hikes. However, they also believe it will take time before rate cuts occur. Ellen Zentner of Morgan Stanley Wealth Management said, "Despite the Fed's hawkish statement, the next policy move is still likely to be a rate cut," but added, "It will take time for inflation to ease enough for the Fed to feel comfortable moving to rate cuts."

This content was produced with the assistance of AI translation services.