Market on Alert After Walsh's First FOMC: U.S. Treasury Yields Rise, Stocks Fall

Market Digests 'Hawkish' FOMC

Risk Assets Weaken Across the Board

Nasdaq Futures Gain Over 1% After Hours

Kevin Walsh, Chairman of the U.S. Federal Reserve (Fed), presided over his first Federal Open Market Committee (FOMC) meeting since taking office, where the benchmark interest rate was kept unchanged. However, the market interpreted this as a hawkish (favoring monetary tightening) signal. Investor caution increased, especially as the possibility of an interest rate hike by the end of the year was raised within the Fed, and Chairman Walsh did not release the dot plot.

Kevin Warsh, Chair of the U.S. Federal Reserve (Fed), is speaking at a press conference after the Federal Open Market Committee (FOMC) regular meeting held on the 16th-17th (local time). Photo by AP Yonhap News

According to Bloomberg on June 18 (Korea Standard Time), the yield on the U.S. 2-year Treasury note surged as much as 16 basis points (bp, 0.01 percentage point) during trading to reach 4.21% before narrowing its gains to 4.164%. At the same time, the 10-year Treasury yield was trading at 4.461%. In the bond market, yields and prices move in opposite directions.

The market had previously expected that even if the Fed kept rates on hold, it would leave the door open for a potential rate cut within the year. However, at this FOMC meeting, the outlook from Fed members was more hawkish than anticipated. In the released Summary of Economic Projections (SEP), the median projection for the benchmark interest rate at the end of this year was 3.8%, 0.4 percentage points higher than the 3.4% forecast in March. Nine committee members expected at least one rate hike within the year, with six of them projecting two or more hikes. Notably, Chairman Walsh refused to submit the dot plot rate forecast, adding to uncertainty in the market.

Risk assets immediately weakened. All three major U.S. stock indexes ended lower. The S&P 500 and Nasdaq indices fell by more than 1%, while the Dow Jones Industrial Average ended down 0.98%. Gold prices also declined, and the cryptocurrency market saw a broad downturn, with Bitcoin down 1.65% and Ethereum falling by approximately 2%.

However, some markets showed signs of stabilizing as they digested the FOMC results. On the morning of June 18, S&P 500 futures and Nasdaq futures were up 0.89% and 1.45%, respectively, while Dow futures rose 0.58%.

Online outlets such as Axios pointed out that while the Fed has shifted to a more hawkish stance, the market is focusing on the fact that Chairman Walsh did not mention a hike in July or September. Sonu Varghese, Chief Macro Strategist at Carson Group, stated, "The Fed kept rates on hold but spoiled market sentiment with a much more hawkish dot plot. Given high inflation, this is understandable, but internal views within the Fed remain divided."

Meanwhile, investors are also expected to keep a close watch on the May Leading Economic Index, the June Philadelphia Fed Manufacturing Index, and the weekly initial jobless claims for the week ending June 13, according to financial news outlet CNBC.

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