United States stocks end volatile day lower as Fed lifts rates

24 March, 2018, 12:33 | Author: Elaine Woods
  • Federal Reserve chairman Jerome Powell

On Wednesday, the U.S. central bank again raised its benchmark overnight lending rate by another 25 basis points- the fifth rate hike since it ended its ultra-low interest rate policy in December 2016, and setting current rates to a range of 1.50 percent to 1.75 percent. While this might seem daunting for the average consumer with debt or mortgages, the increase is actually a sign of continued health and strength in the economy.

Stocks initially climbed after the Fed confirmed a long-expected quarter-point rate hike.

But the Fed's new forecast does envision somewhat stronger economic growth compared with its previous estimate: It raises the estimate to 2.7 percent growth this year, up from 2.5 percent in the December projection, and 2.4 percent in 2019, up from 2.1 percent.

The Federal Reserve said it had made a decision to raise the rate by 0.25% to a target range of 1.5% to 1.75%.

Ten years after the financial crisis, even as the Fed is carefully moving towards normalizing policy-though it may have to move faster if inflation surprises on the upside-the risk for the global economy at the moment is populist measures by the U.S. government.

"If I venture a prediction, there might be a four rate hikes in 2018", Stern NYU Professor of Economics Nicholas Economides said Wednesday during an interview on FOX Business' "Countdown to the Closing Bell".

In the Fed's projections, this would be accompanied by inflation that rises to - and just temporarily above - the 2 percent target the central bank has set.

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But markets later pulled back during new Fed Chair Jerome Powell's news conference in which he was asked repeatedly about risks to the economic outlook, including from a possible trade war between the U.S. and China. The Fed was tempted by the strengthening economy, optimism on reaching the inflation target this year and impressive labor market gains. Though economic growth has been revised higher, there was no change in the inflation projection.

Jitipol Puksamatanan, a strategist of Krungthai Bank, said that the baht's rise to 31.16 to the USA dollar, after the market opening, contrasted with its mark of 31.22 at the close of the previous day's trading.

The Fed raised its key rate by 25 basis on Wednesday and flagged at least two more increases this year, but stopped short of pointing to three increases that some economists predicted. "But, this now being the sixth interest rate hike, the cumulative effect since December 2015 is that a $30,000 home equity line now carries a minimum payment that is $37 a month higher", McBride said.

According to Jim Wyckoff of Kitco, "u$3 pside price action in gold and silver markets, post-Federal Open Market Committee, is an example of the "sell-the-rumor, buy-the-fact" scenario that occurs when traders factor into prices expected bearish events before they actually occur". The yield on the 10-year Treasury note declined to 2.88 percent from 2.90 percent Tuesday.

The median estimate for economic growth this year rose to 2.7% from 2.5% in December, signaling confidence in U.S. consumers despite recent weak readings on retail sales that have pushed down tracking estimates of first-quarter activity.

And indeed, the Fed now sees the median estimate for economic growth this year rising higher to 2.7 percent. Some analysts also worry about the economic consequences of President Donald Trump's proposed tariffs on imports, which risk triggering a trade war with other nations. Higher rates could affect confidence and lead to higher volatility in financial markets.

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