Stocks plunge again as slowdown fears worsen; Dow sinks another 464 points

Federal Reserve raises interest rates, signals fewer hikes ahead

Federal Reserve raises interest rates, signals fewer hikes ahead

The Federal Reserve on Wednesday voted to raise interest rates despite new signs of economic softening and weeks of market volatility.

Walking a fine line between being overly optimistic and too pessimistic, the Federal Reserve bumped up its benchmark interest rate on Wednesday and said the U.S. economy remained strong, but it warned of possible headwinds next year and signaled it would tighten credit twice in 2019 rather than three times as it previously forecast.

Interest rates have increased seven times since President Donald Trump took office.

As gold bugs, we must recognize that the world's central bankers play important role in determining the future of the markets, currencies, and the commodities sector.

As expected, the Fed raised the federal funds rate - which is what banks charge each other for overnight loans - by a quarter point to a range of 2.25 to 2.5%.

Another miserable day on Wall Street knocked 464 points off the Dow Jones Industrial average, bringing its losses since Friday to more than 1,700 points. Powell told the media on Wednesday that the President's tweets will not have any bearing on the Fed's policies.

The two-year USA yield stood at 2.656 percent, just 0.097 percent less than the 10-year yield.

"It appears that markets are perhaps now starting to focus on some of the more dovish aspects of the Fed's announcement", said Nick Bennenbroek, currency strategist, at Wells Fargo Securities in NY.

Members also lowered their forecast for interest rates in 2020 and 2021.

More news: Nick Jonas & Priyanka Chopra Host Second Wedding Reception in India
More news: Corbyn calls vote to remove May - as no deal Brexit advances
More news: Samsung Galaxy S10 leak reveals launch date, price and more

Most thought the Fed would hit the pause button on any rate hikes for the remainder of 2018, with a slower clip of rate increases in the new year.

The broader S&P 500 index continued its slump, too, and is down 10.6 per cent this month alone, with six days of trading to go.

"We expect additional rate hikes will invert the three-months to 10-year yield curve, which is a reliable signal for a bear market for stocks and a coming recession for both the USA and the rest of the world", said Jeffrey Kleintop, chief investment strategist at Charles Schwab in Boston.

The Fed said on Wednesday that the USA economy has been growing at a strong rate and the jobs market had continued to improve.

The Fed raised rates again despite pressure from the United States president - who has tweeted repeatedly about his opposition to a rise - as it lifted its benchmark rate to a range of 2.25% to 2.5%. Powell said that adjustments of the balance sheet reduction were not an option.

"We expect additional rate hikes will invert the three-months to 10-year yield curve which is a reliable signal for a bear market for stocks and a coming recession for both the USA and the rest of the world", said Jeffrey Kleintop, Chief Investment Strategist at Charles Schwab in Boston. The central bank expects the long-term level of its main interest rate will be 2.8 percent, down from an earlier projection of 3 percent. According to data from Bloomberg, the benchmark S&P 500 index is on course for its second-worst December on record and remains firmly in correction territory, typically defined as a drop of 10 per cent or more from a recent high. Alternatively, they are prepared to lower interest rates if the economy grows slower.

All major indices closed at fresh lows for the year as the tech-weighted Nasdaq shed 1.6 percent to close near bear-market territory - a dubious distinction marking a 20 percent drop below a previous high - due to the end of the easy-money era.

The move showed that the Fed sees the economy growing quickly enough to require a tap on the monetary brakes to keep it from overheating. However, during the FOMC's last meeting in September, slightly more committee members projected three rate hikes in 2019.

Recommended News

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.