In a surprising yet decisive move, the Federal Reserve has opted to maintain its current interest rate at a range of 5% to 5.25%. This marks the first pause in what has been a series of ten consecutive hikes, signifying a potential shift in the central bank’s approach to monetary policyDespite this pause, the Fed’s “dot plot” signals that the median interest rate could rise to 5.6% by the end of the year, indicating that there could still be room for two additional increases totaling 50 basis points (bps).

Chair Jerome Powell emphasized that June’s decision should not be framed as a “skip” but rather as a deliberate slowdown in the pace of rate hikesIn light of economic forecasts, the Fed has raised its core inflation expectations for this year while simultaneously downgrading its projections for unemployment in the coming years

As a result, the market has assigned a 65% probability to a potential rate hike in JulyFrom this perspective, it appears that the Fed is still quite distant from considering rate cutsThe journey to tame inflation continues to be steep and fraught with challenges.

The Fed is not “pausing” indefinitely but is merely adjusting its course.

Initial analysis suggests that a CPI report meeting expectations effectively rules out any unexpected rate hike in June, allowing the Fed to proceed as anticipated by keeping rates steadyThis is in line with their cautious yet steady economic outlook.

Despite the lack of shocking headlines, the central bank’s monetary policy declaration, economic projections, and subsequent press conference provided crucial insights for traders

The Federal Open Market Committee (FOMC) acknowledged that the economy continues to expand at a moderate pace, although this may not serve as a major market driverThe only adjustment was the notation that maintaining stable rates allows for a better assessment of economic information, hence reiterating that today's decision feels more like a tactical “skip” in the ongoing rate hike cycle rather than a genuine halt.

The FOMC's economic predictions indeed unveiled a significant surpriseOn the Fed's infamous dot plot, the central members adjusted their forecasts for the year-end rate, projecting an increase of 50bps to a new range of 5.50% to 5.75%. This adjustment signals that most Fed members now anticipate at least two more rate hikes of 25bps each this year.

Additionally, in a noteworthy revision, the FOMC upgraded its GDP growth forecasts for 2023 from a previous figure of 0.4% to 1.0%, and it raised the core PCE inflation expectations from 3.6% to 3.9%. Conversely, the unemployment rate forecast for year-end was adjusted downwards from 4.5% to 4.1%. In essence, Powell and his colleagues have positively revised their outlook for the U.S

economy, suggesting that the pace of future rate increases might exceed earlier predictions.

Powell’s statements during the press conference reinforced the “hawkish hold” conveyed in the economic projections, indicating the Fed's reluctance to ease its stanceHe insisted on the commitment to achieve a 2% inflation target, arguing that without price stability, the labor market's strength could falterHe also hinted at a more balanced labor market—a notable consideration while the Fed chooses to keep rates unchanged.

Nonetheless, several institutions argue that the Fed might consider halting rate hikes altogether as inflation trends appear to be stabilizingFor instance, the energy price shocks seem to have subsided, reflected in a general decline in energy prices which negatively impacted the CPI in May

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Furthermore, inflation for goods that skyrocketed during the pandemic is showing signs of easingAlthough used car prices have surged by 4.4% in both April and May, this might just be a fleeting situation as the consumer prices for used cars typically lag behind wholesale prices by about two months, indicating they may plateau in June and decline significantly in JulyRent prices also appear to be cooling.

However, inflation continues to run above the Fed’s target, with expectations for the core PCE to retract to 2.8% by the end of next year, remaining above the 2% policy targetConsequently, managing inflation expectations remains a pivotal challenge for the Fed, which won’t send dovish signals until the labor market shows signs of significant weakeningTherefore, the current interest rates are likely to remain unchanged for a considerable period.

With the S&P 500 and Nasdaq 100 indices now in a technical bull market,

the outlook remains cautiously optimistic.

On Thursday, mixed performance was evident across the three major U.S

stock indicesFollowing expectations of continued rate hikes, the Dow Jones index faced resistance and slipped back from crucial levelsIn contrast, the Nasdaq improved furtherYear-to-date, the S&P 500 and Nasdaq 100 indices rebounded more than 20% and 30% respectively, indicating a shift into technical bull markets.

Recent market fluctuations may intensify, yet a considerable plunge or testing of previous lows does not seem imminent for U.SequitiesWhile concerns about economic recession and declining profits persist, particularly among consumer-dependent retailers, tech stocks continuously exhibit a striking rebound, buoying overall indicesThis remarkable uptick in tech stocks is closely linked to the ongoing enthusiasm surrounding artificial intelligence; an economic sector that seems to have captivated investors, leading them to perceive it as the most secure play at present, ensuring its momentum remains unabated for the short term.

In the foreseeable future, the market is likely to reflect a scenario where a select few tech stocks prop up the indices, while the majority encounter significant pressure

The heavyweight tech stocks act as “cash cows,” greatly influencing safe-haven trades during uncertain periodsAdditionally, these stocks remain supported by critical factors; apart from the AI craze, the Fed might consider rate cuts sometime in 2024, further bolstering their strength.

After peaking at 4,391 points on Wednesday, the S&P 500 faced resistance and retreated during Thursday’s trading session, testing the support at 4,350 points stemming from the trendline established since early MarchA downturn pushed the relative strength index (RSI) lower from overbought conditionsNevertheless, the index rebounded, successfully crossing the 4,000 point threshold, concluding Thursday's session with the S&P 500 and Nasdaq 100 indices up by 1.0% and 0.9%, respectively, along with a broader Russell 2000 index increase of 0.4%.

This positive momentum is also attributable to stronger-than-anticipated retail data

Retail sales in May rose by 1.6% YoY, surpassing analyst predictions and indicative of robust consumer sentiment; month-over-month, retail sales climbed by 0.3%, well above the projected decline of 0.1%, albeit a slight step back from April's 0.4%. When excluding automotive and gasoline, retail sales saw a 0.4% increase month-over-month—double the anticipated growth and slightly below April’s figure of 0.5%.

Moreover, claims for unemployment benefits have shown no signs of widespread layoffs, revealing a tight labor marketThe week ending June 10 saw an initial application for unemployment benefits totaling 262,000, slightly above the forecast of 245,000 and just above the previous week’s number of 261,000. The four-week average of claims increased to 246,000, up from the previous week's 237,000. Conversely, the number of continuing claims rose by 20,000 to 1.775 million, with the four-week average declining by 6,000 to 1.778 million.

Looking ahead, should the S&P 500 breach the 4,350 support level, it could test the high from August at 4,325, with further declines potentially leading to the 4,260 mark, which was last week’s low

Conversely, bulls are anticipating a rise above the recent high of 4,391 to confirm a further upward trajectory, setting targets towards 4,400.

Gold prices nearing the $1980 mark

Could potentially hit $2000 next week.

In terms of market impact stemming from the Federal Reserve's meeting, both the dollar and key indices are closely scrutinized, though gold merits attention as wellOver the past month, gold has been consolidating within a narrow range around $1960, fluctuating within a $50 bandwidth.

Any unexpected Fed actions could see gold break free from this rangeA more hawkish outcome from the meeting could serve as a bearish catalyst for gold, potentially plunging below the $1930 support level and rapidly heading towards the 61.8% Fibonacci retracement level around $1910. Conversely, should the rhetoric lean more dovish, suggesting an end to the rate hike cycle, gold could rise back to near the recent high of $1980 and potentially approach the $2000 mark next week.

This FOMC meeting evidently was more hawkish than anticipated, as international gold prices dipped to the $1940 range on Thursday, but rebounded back to around $1960 on Friday.

Currently, gold has struggled to hold above the 50-day moving average (around $1990) and remains trapped in a tight trading zone