Published: Sat, December 22, 2018
Money | By Bruce West

US Stocks Sink Sharply After the Federal Reserve Hikes Rates

US Stocks Sink Sharply After the Federal Reserve Hikes Rates

But a shift toward "data dependence" means more guessing from investors going forward about just how fast the Fed plans to raise rates to keep the United States economy from wobbling.

The very many risks whirling about markets are highly applicable to the Australian equities.

Defense contractors fell after President Donald Trump said he's withdrawing USA soldiers from Syria in an unexpected move. Financial markets have largely declined through 2018 in response to slowing global growth and tightening monetary policy as central banks raise rates. For instance, it lowered its estimates of real GDP growth in 2018 and 2019 and modified its policy statement from saying that it expects "further gradual increases in the target range for the federal funds rate" to "some further gradual increases".

It said "some further" rate hikes would be necessary in the year ahead, with its policy-makers projecting two rate hikes on average next year instead of three they saw back in September, a change that was also largely in line with expectations.

USA stocks had been up sharply before the Fed's announcement, but the Dow Jones Industrial Average closed down about 352 points. Investors were disappointed that Fed Chairman Jerome Powell failed to indicate a more marked slowdown in the pace of rate hikes, given concerns over the state of the US economy.

The Fed's fourth rate increase of the year, which sent Wall Street tumbling, moved the central bank squarely into the crosshairs of the president, who had said earlier a rate hike would be "foolish". But a mix of factors - a global slowdown, a U.S.

On the other hand, in bull markets, when stock prices surge, we didn't find much of an impact on the likelihood that the Fed would increase rates to cool things down. The Fed issued a set of economic projections and a policy statement at 2.00 p.m.

And already policymakers have begun discussing how best to communicate that shift to the public, according to minutes of the Fed's last meeting in November. We're always going to be focused on the mission that Congress has given us. But now, the risks of a surprise could rise. Instead, he has decided, beginning in 2019, to hold news conferences after each of the Fed's eight meetings each year, rather than only quarterly. This will allow him to explain any abrupt policy changes.

"The list of headwinds has been growing throughout the year", he said.

The Fed had little choice but to raise rates on Wednesday.

"Powell dropped some subtle hints he thinks the neutral rate is higher than the lower bound estimate of 2.5%".

His comment reinforced the notion that the Fed might be poised to slow or halt its rate hikes to avoid weakening the economy. But exactly where that point is depends on what the latest economic data may show.

Despite the Fed's forecast for slower growth, Mnuchin said the administration still thinks it can achieve 3 percent annual growth next year as well.

Australian shares suffered their biggest weekly loss in over a month on Friday, as investors stampeded out of riskier asset markets on heightened anxiety over faltering global growth prospects. Consumers, the main driver of the economy, are spending freely. By 2021, four Fed officials envision reversing course and actually cutting rates to help stimulate the economy.

He also said two rate hikes by the Fed would be "two too many". "The Fed needs to be paying attention to what's going on". It predicts 2 percent growth in 2020. Economic growth has picked up this year thanks in part to tax cuts.

The market is swooning even as the US economy is on track to expand at the fastest pace in 13 years. But this time, the risks to the economy seem to be rising. The bond market has correctly predicted several previous USA recessions by buying long-term bonds and sending yields down. Trump's trade conflict with Beijing could, over time, undermine the world's two largest economies. Over the past few years, stock markets in December have generally ended the year strongly, the so-called "Santa Rally". But it's likely to do so at a slower pace. But as interest rates rise and regions the US does a lot of business with, like Europe and China, also slow down, those estimates might be harder to reach.

After the financial crisis erupted in 2008, the Fed kept rates at historically low levels to revive the ailing economy.

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