Markets price in 36 bps of Fed tightening by year-end after hawkish dot plot signals potential rate increases.
The S&P 500 remains under pressure as investors digest a hawkish shift from the Federal Reserve, which signaled potential rate hikes in its latest dot plot. The median projection now includes one hike this year, with some policymakers penciling in multiple increases, defying earlier expectations of no changes. Markets have responded by pricing in 36 bps of tightening by year-end, with a 34% chance of a July hike and 68% odds for September.
Prior to the FOMC meeting, consensus leaned toward no rate cuts or hikes in 2024. The Fed’s pivot reflects its renewed focus on bringing inflation back to its 2% target, which it has missed since 2021. The shift has dampened risk appetite, limiting the S&P 500’s upside after a two-month rally.
Upcoming U.S. economic data will be critical in shaping the Fed’s next move. Soft figures could trigger a dovish repricing, easing financial conditions, while stronger-than-expected prints may reinforce tightening bets and pressure equities further.