Stocks stay in red on hawkish Fed tone

June 23, 2023 | 12:00am

MANILA, Philippines — Shares prices stayed in negative territory yesterday after US Federal Reserve Chair Jerome Powell stuck to his recent hawkish tone on the central bank’s likely interest rate path.

The benchmark Philippine Stock Exchange index (PSEi) closed at 6,404.91, down by 19.30 points or 0.30 percent, while the broader All Shares index slipped by 9.12 points or 0.27 percent to 3,417.69.

Mikhail Plopenio of Philstocks Financial said the local market followed the downturn in Wall Street overnight following Powell’s remarks in his testimony to the US Congress.

“Investors seemed to have been weighed by the hawkish statements from the Federal Reserve despite the anticipated rate hike pause from the Bangko Sentral ng Pilipinas,” he said.

Last week, the Fed held its benchmark interest rate steady at between five percent and 5.25 percent, but officials projected rates will have to increase another half percentage point by year’s end to tame inflation.

Powell in his remarks to lawmakers in Washington said the outlook for two further 25-basis-point (bps) rate increases are “a pretty good guess” of where the central bank is heading if the economy continues in its current direction.

Kevin Cummins, chief economist at NatWest Markets, said Powell’s testimony didn’t shed any new light on the Fed’s thinking or the likely future path for monetary policy, adding that his tone was very similar to last week’s press conference and mostly leaned hawkish.

“It’s clear that the FOMC wants the market to understand that a hike will be on the table for debate at the next meeting. The Fed’s data-dependent approach in this tightening cycle suggests upcoming data releases could shift expectations.”

Atlanta Federal Reserve president Raphael Bostic said on Wednesday the Fed should not raise rates further or it would risk “needlessly” sapping the strength of the US economy.

The comments highlight the growing debate at the central bank over when and if the central bank should hike further.

“The next six months, as much as we would like to stop talking about the Fed, but it’s going to be the continued driver of sentiment in the market,” said Michael Dyer, investment director, multi assets at M&G Investments.