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| US stock market hits one-year low after Fed defies Trump with rate hike - business live | |
| (35 minutes later) | |
| Newsflash: The US stock market has closed at its lowest level in over a year, following today’s interest rate hike. | |
| The Dow Jones industrial average shed 1.5%, or 351 points, to end at 23,323 points - the lowest point since November 2017. | |
| That’s a 650-point swing downward since the Fed announced its decision two hour ago. | |
| The S&P 500 shed 1.4% to 2,510 points, the lowest since late September 2017, while the tech-focused Nasdaq has lost 2%. | |
| Clearly Wall Street is disappointed that the Fed expects two more rate hikes next year, on top of today’s rise (which was generally expected). | |
| My colleague Dominic Rushe has covered the Fed’s rate hike, and chair Powell’s press conference, here: | |
| Federal Reserve raises interest rates despite pressure from Trump | |
| I said earlier that this was a dovish hike. | I said earlier that this was a dovish hike. |
| Actually, it looks more like a dovish-ish one. | Actually, it looks more like a dovish-ish one. |
| Although the Fed has lowered its predicted path of rate increases, it has signalled that it won’t be deterred by a bit of market volatility, and that it expects growth to continue next year. | Although the Fed has lowered its predicted path of rate increases, it has signalled that it won’t be deterred by a bit of market volatility, and that it expects growth to continue next year. |
| As Melanie Baker, senior economist, at Royal London Asset Management, puts it: | As Melanie Baker, senior economist, at Royal London Asset Management, puts it: |
| The Federal Open Market Committee (FOMC), as expected, raised rates 25bps, with their projections implying one fewer rate rise next year. However, the signals sent in the statement and forecasts weren’t as dovish as we had expected, e.g. only making a small adjustment to their language around “further gradual” hikes (by adding the word “some”). A more cautious signal from the Fed could have been justified (and would have been welcomed by equity markets) given the tightening in financial conditions and weaker global growth backdrop. | The Federal Open Market Committee (FOMC), as expected, raised rates 25bps, with their projections implying one fewer rate rise next year. However, the signals sent in the statement and forecasts weren’t as dovish as we had expected, e.g. only making a small adjustment to their language around “further gradual” hikes (by adding the word “some”). A more cautious signal from the Fed could have been justified (and would have been welcomed by equity markets) given the tightening in financial conditions and weaker global growth backdrop. |
| However, the domestic economic data has looked strong enough to suggest that we aren’t at the peak of the rate cycle quite yet. | However, the domestic economic data has looked strong enough to suggest that we aren’t at the peak of the rate cycle quite yet. |
| Bob Baur, chief global economist at Principal Global Investors, thinks the Fed is being too relaxed about recent market volatility: | Bob Baur, chief global economist at Principal Global Investors, thinks the Fed is being too relaxed about recent market volatility: |
| The Fed raised rates as expected, but I think the Fed may be underestimating other factors at play. Trade has been making headlines, but I think a gradual tightening of monetary policy has been the driving force behind recent market volatility. With corporate borrowing and spending still high, and the Fed continuing to reduce its balance sheet, I’d expect volatility to remain if this tightening continues. | The Fed raised rates as expected, but I think the Fed may be underestimating other factors at play. Trade has been making headlines, but I think a gradual tightening of monetary policy has been the driving force behind recent market volatility. With corporate borrowing and spending still high, and the Fed continuing to reduce its balance sheet, I’d expect volatility to remain if this tightening continues. |
| “I still think there is a disconnect between Main Street and Wall Street. A general consensus is that a market downturn signals an upcoming recession, but most underlying data points are still healthy and the economy is robust. Just the other day we saw data signalling strong consumer spending, which is one of a few points that tell me the real economy is doing well. | “I still think there is a disconnect between Main Street and Wall Street. A general consensus is that a market downturn signals an upcoming recession, but most underlying data points are still healthy and the economy is robust. Just the other day we saw data signalling strong consumer spending, which is one of a few points that tell me the real economy is doing well. |
| “I also think the Fed missed the significance around the tightening of financial conditions beyond their activity. The stock market is down, credit spreads are way up, bank stocks are plunging and the dollar is stronger. I think markets would have applauded the Fed signalling a pause next year to see how markets have been adjusting to their previous rate decisions. | “I also think the Fed missed the significance around the tightening of financial conditions beyond their activity. The stock market is down, credit spreads are way up, bank stocks are plunging and the dollar is stronger. I think markets would have applauded the Fed signalling a pause next year to see how markets have been adjusting to their previous rate decisions. |
| Michael McDonough of Bloomberg has pinpointed the moment when US stocks got a chill from Powell.... | Michael McDonough of Bloomberg has pinpointed the moment when US stocks got a chill from Powell.... |
| S&P 500 Intraday & What Powell Said: pic.twitter.com/Zd5fVuwCI8 | S&P 500 Intraday & What Powell Said: pic.twitter.com/Zd5fVuwCI8 |
| Finally, a question on Brexit. | Finally, a question on Brexit. |
| Jerome Powell thinks the US financial system is well-prepared for whatever happens, whether the UK leaves the US with a transition deal, or without one. | Jerome Powell thinks the US financial system is well-prepared for whatever happens, whether the UK leaves the US with a transition deal, or without one. |
| But the Fed will be watching closely, as Brexit is a big issue and something that’s not happened before. | But the Fed will be watching closely, as Brexit is a big issue and something that’s not happened before. |
| That’s the end of the press conference. | That’s the end of the press conference. |
| Jerome Powell reiterates that the Fed expects solid growth in 2019, with declining unemployment. | Jerome Powell reiterates that the Fed expects solid growth in 2019, with declining unemployment. |
| That sounds like conditions that would justify further rate hikes next year, which is why shares are diving in New York. | That sounds like conditions that would justify further rate hikes next year, which is why shares are diving in New York. |
| Equity markets plunge following Fed rate hike:US Indices update:#DOW 23329.38 -1.46%#SPX 2507.43 -1.52%#NDX 6350.61 -2.17%#VIX 25.78 +0.78% | Equity markets plunge following Fed rate hike:US Indices update:#DOW 23329.38 -1.46%#SPX 2507.43 -1.52%#NDX 6350.61 -2.17%#VIX 25.78 +0.78% |
| Q for @federalreserve chairman - how big an impact is he expecting Europe's economy to be on the US next 2 years- characterize the situation in the UK, France & Italy now . @MorningsMaria @FoxBusiness | Q for @federalreserve chairman - how big an impact is he expecting Europe's economy to be on the US next 2 years- characterize the situation in the UK, France & Italy now . @MorningsMaria @FoxBusiness |
| Chair Powell is having quite an impact.... | Chair Powell is having quite an impact.... |
| To my earlier point, the markets aren’t loving this... pic.twitter.com/pBbJCGu12n | To my earlier point, the markets aren’t loving this... pic.twitter.com/pBbJCGu12n |
| The sell-off is gathering pace! | The sell-off is gathering pace! |
| BREAKING: Dow slides more than 400 points as Fed chair Powell delivers news conference after hiking rates; index was earlier up more than 380 pointshttps://t.co/SPz0hnyZMd pic.twitter.com/ue5EJSKkRT | BREAKING: Dow slides more than 400 points as Fed chair Powell delivers news conference after hiking rates; index was earlier up more than 380 pointshttps://t.co/SPz0hnyZMd pic.twitter.com/ue5EJSKkRT |
| Next year, the Federal Reserve will hold a press conference after every meeting (rather than every other meeting). | Next year, the Federal Reserve will hold a press conference after every meeting (rather than every other meeting). |
| That will be a “big gain” for communication, Jerome Powell says. | That will be a “big gain” for communication, Jerome Powell says. |
| It also means that the Fed could raise rates more easily at any of its eight meetings (rather than resisting policy changes at non-press conference meetings) | It also means that the Fed could raise rates more easily at any of its eight meetings (rather than resisting policy changes at non-press conference meetings) |
| Q: Donald Trump wants you to ‘feel the markets’, so what feelings are you getting? | Q: Donald Trump wants you to ‘feel the markets’, so what feelings are you getting? |
| Powell plays down the idea that he should be fixated on the stock exchange. | Powell plays down the idea that he should be fixated on the stock exchange. |
| What matters to the economy is changes in a range of markets. A little volatility doesn’t leave a mark, he adds. | What matters to the economy is changes in a range of markets. A little volatility doesn’t leave a mark, he adds. |
| Stocks turn deeper into the red. Dow now down 250 points as Powell not as dovish as expected. pic.twitter.com/sm6aZjcowM | Stocks turn deeper into the red. Dow now down 250 points as Powell not as dovish as expected. pic.twitter.com/sm6aZjcowM |
| If you speak to American companies, you hear that they’re worried about growth prospects, Jerome Powell says. | If you speak to American companies, you hear that they’re worried about growth prospects, Jerome Powell says. |
| Stocks are now falling sharply in New York. | Stocks are now falling sharply in New York. |
| The Dow is now down 1%, or 256 points, having been UP 300 points before the Fed’s announcement. | The Dow is now down 1%, or 256 points, having been UP 300 points before the Fed’s announcement. |
| Q: Are you worried about Donald Trump’s statements, and tweets, about the Fed? | Q: Are you worried about Donald Trump’s statements, and tweets, about the Fed? |
| I’m not worried, Powell replies; he knows everyone at the Fed will keep on doing their job. | I’m not worried, Powell replies; he knows everyone at the Fed will keep on doing their job. |
| He explains that the Fed speaks to hundreds of people, and looks at masses of data, before setting monetary policy. | He explains that the Fed speaks to hundreds of people, and looks at masses of data, before setting monetary policy. |
| Q: How can you tell if the Fed has become a drag on the economy? | Q: How can you tell if the Fed has become a drag on the economy? |
| Powell says the Fed expects decent growth in the US economy next year, of between 2% and 2.5%. So it’ll be watching the data closely to see if that plays out. | Powell says the Fed expects decent growth in the US economy next year, of between 2% and 2.5%. So it’ll be watching the data closely to see if that plays out. |