No Surprise by the Fed

The FOMC raised rates for the 16th consecutive time, by 25 basis points to 5.0%. They also said that some additional tightening might be needed. This is not a big surprise, but in usual fashion, the stock market sold off and bond yields spiked on the news.

Here is the FOMC statement:

"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5%. Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures. The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives. In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 6%."

Despite the language, the fed funds futures market is still predicting a less than 50% chance of another rate hike in June, implying a pause.

If stocks continue to sell off, I expect it to be a brief dip.