m3n4.net March 21, 2019

Stocks Move Notably Lower After Fed Signals June Rate Hike

05 May 2018, 01:31 | Vera Richards

Stocks Move Notably Lower After Fed Signals June Rate Hike

Stocks Move Notably Lower After Fed Signals June Rate Hike

Federal Reserve officials Wednesday held their key interest rate steady despite rising inflation and fears of a global trade war triggered by President Trump's tariffs.

Since March 2017, the Federal Open Market Committee (FOMC) has used the word symmetric in every meeting statement to emphasize that it won't react severely if inflation is above its target.

Another reason for the market's wariness was the Fed's acknowledgment of some recent softening of the economic data - with consumer spending slowing notably in the first quarter - but it remained steadfast in its outlook for gradual interest rate increases.

In view of recent improved inflation data, investors also expected that the central bank might raise interest rates by a total of three to four times this year.

The Fed raised its benchmark overnight lending rate at its March 20-21 meeting by a quarter percentage point to a target range of between 1.50 percent and 1.75 percent.

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On 14 May comes the US Embassy move, marking a significant shift in decades of American policy toward Israel and the Palestinians. The crisis erupted last summer, when Saudi Arabia, Bahrain and the UAE blocked the country, accusing it of supporting terrorism.

Last night the Fed acknowledged rising inflation, which...

However, few economists expect any mention of trade risks in the Fed's policy statement on Wednesday and see any tweaks as likely to be confined to upgrading the language on inflation to reflect that it is now effectively at target.

"Inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term", said the Fed.

But the FOMC statement said the headline and core PCE inflation measures had "moved close" to the two percent goal since the last meeting.

Sterling was fairly range bound against the US Dollar on Wednesday, with yesterday's better-than-expected construction PMI providing no more than a temporary boost to the Pound.

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In the oil market, United States crude rose 68 cents to settle at $67.93 a barrel, while Brent gained 23 cents to settle at $73.36. We think this further reinforces the case for rates not be hiked at next week's MPC meeting.

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The yield on 10-year US Treasury notes slipped slightly to 2.96 per cent following the release of the statement, while the S&P 500 Index of US stocks climbed to its highest level of the day and the Bloomberg Dollar Spot Index fell. We think this means there is a good chance we could see a rebound in Friday's nonfarm payrolls number following March's six month low. Equities tumbled in the final hour of trading as concern mounted that the Fed may let inflation run hot as it gradually tightens.

The benchmark United States 10-year Treasury yield eased about 1 basis point in early Asian trade to 2.970 percent. The Institute for Supply Management (ISM) survey published on Tuesday showed US factory activity slowed in April, but it highlighted shortages of skilled workers and rising costs, suggesting inflationary pressure is building.

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