To The Moon

In a widely anticipated move, the US Federal Reserve raised interest rates for the 10th time in just over a year. The Fed fund rate now stands at a target range of 5%-5.25%, which is the highest it has been since August 2007.

Source: Bloomberg

During the news conference that followed the meeting, Chairman Jerome Powell confirmed that "a decision on a pause was not made today." This is despite the omission of a sentence stating that “the Committee anticipates that some additional policy firming may be appropriate." It appears that the Fed has finally reached the terminal rates it had set out to achieve.

S&P 500 & Nasdaq Index, Source: Bloomberg

The bond markets initially priced a rate hike in the June Fed meeting. However, the sentiment soon changed into a likely rate pause as the more probable outcome. There is also a possibility that there could be a rate cut by before the year's end, as indicated by the surge of treasuries, particularly in intermediate and shorter-dated securities.

The Asia markets are likely to experience a positive impact from the Fed’s rate pause. Borrowing costs that have been rising over the past year are expected to soon see the peak of the cycle.

On Thursday, the Hong Kong Monetary Authority (HKMA) followed the footsteps of the US Fed in raising its benchmark interest rate by 25 basis points. This could potentially be the last hike of its tightening campaign.

Source: Bloomberg

Indeed, the first quarter of the year saw the Hong Kong economy finally emerge from recession, thanks in large part to the reopening of its borders, which stimulated consumer spending. As such, the rate pause by the Fed could be a timely boost to the city's ongoing efforts to rebuild its economy in the second half of the year. Furthermore, it could also be a much-needed respite after multiple rounds of intervention by the HKMA to defend the Hong Kong dollar peg.

On the banking sector, Chair Jerome Powell tried to reassure the market that the banking-sector conditions have “broadly improved” since early March. Despite his assurance, the ongoing troubles within the sector remain a major source of concern.

In after-market hours, the share price of $PacWest(PACW)$ plunged by more than 50%. This is based on reports that the bank is exploring strategic options, including a potential sale. This is especially concerning given the recent collapse of three US banks. As such, the outlook for the banking sector remains uncertain, and it will be important for policymakers to closely monitor the situation and take appropriate action as needed.

Source: Bloomberg