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Stocks Rise Ahead of Fed Decision That Could Signal Slowdown in Interest Rate Hikes Stock Rally Fades After Fed Signals Interest Rate Hikes Will Continue
(35 minutes later)
And now, the wait Stocks pared their early gains after the Federal Reserve signaled that it plans to keep raising interest rates next year.
Stocks were modestly higher on Wednesday as investors awaited the outcome of the latest meeting of Federal Reserve policymakers. Announced at 2 p.m., the Fed’s decision wasn’t the tonic that stock market bulls — battered by a nearly 8-percent drop this month through Tuesday — had hoped for. The S&P 500 stock index, which had been up more than 1 percent before the Fed’s announcement, quickly turned lower after the central bank raised its key short-term interest rate by a quarter-point.
It is widely expected that the Fed will raise interest rates again, by a quarter-point, following a two-day meeting of the Federal Open Market Committee. But policymakers are also expected to calm jittery investors by emphasizing that further rate increases in 2019 will depend on sustained economic growth. It was widely expected that the Fed would raise interest rates again, but policymakers had also been expected to calm jittery investors by emphasizing that further rate increases in 2019 would depend on sustained economic growth. Instead, in its statement, the Fed highlighted the strong economy.
“The Fed message to the markets is, take a breath,” said Brian Belski, chief investment strategist at BMO Capital Markets in New York. “The Fed did its job today.”
[Investors expect a much less aggressive Fed in 2019.][Investors expect a much less aggressive Fed in 2019.]
Stocks on Wall Street rose slightly in early trading, and markets in Europe were also higher by less than 1 percent. Trading in Asia ended with mixed results. Oil prices, which have taken a pounding in recent days, were relatively stable, rising slightly after the Fed’s announcement, though remaining near their lowest level this year.
Oil prices, which have taken a pounding in recent days, were relatively stable, though hovering near their lowest levels in a year. In the United States, package delivery giant FedEx was down as much as 10 percent after it cut its forecast for 2019 profits more sharply than analysts had expected. FedEx executives spotlighted ongoing strength in the United States, thanks to the strong position of consumers. But it downgraded its outlook for the global economy.
Brent crude, the international benchmark, was up about 3 cents at $56.29 a barrel, while West Texas Intermediate was down about 0.4 percent at $46.05. Market participants worry that weakening world economic growth will lower demand for oil. So far, the agreement reached in Vienna on Dec. 7 between OPEC and Russia to cut 1.2 million barrels a day has failed to ease concerns that growing output from shale oil producers in the United States will lead to a glut.
[Read more about Tuesday’s drop in crude oil prices and what’s behind it.]
In the United States, package delivery giant FedEx was down more than 10 percent after it cut its forecast for 2019 profits more sharply than analysts had expected. FedEx executives spotlighted ongoing strength in the United States, thanks to the strong position of consumers. But it downgraded its outlook for the global economy.
“The peak for global economic growth now appears to be behind us,” said a FedEx executive, Rajesh Subramaniam, on a conference call following the release of its results yesterday.“The peak for global economic growth now appears to be behind us,” said a FedEx executive, Rajesh Subramaniam, on a conference call following the release of its results yesterday.
Growing concerns about slowing global growth, due in part to the trade war between the United States and China, and the Federal Reserve’s response to any potential slowdown have been at the heart of this year’s global sell-off for stocks. For most of the year, stocks in the United States, which has an economy that is less dependent on trade, had been largely insulated from the drop.Growing concerns about slowing global growth, due in part to the trade war between the United States and China, and the Federal Reserve’s response to any potential slowdown have been at the heart of this year’s global sell-off for stocks. For most of the year, stocks in the United States, which has an economy that is less dependent on trade, had been largely insulated from the drop.
But a sell-off that started in late September gathered pace in October, and has sent the S&P 500 stock index down more than 13 percent since from its recent high-water mark. In December alone, the S&P was down nearly 8 percent through Tuesday.But a sell-off that started in late September gathered pace in October, and has sent the S&P 500 stock index down more than 13 percent since from its recent high-water mark. In December alone, the S&P was down nearly 8 percent through Tuesday.
In light of those losses, investors have increasingly come to see Wednesday’s decision from the Fed as crucial to whether the current bull market has more room to run — the latest episode in a close relationship that developed between financial markets and the Federal Reserve in the aftermath of financial crisis and deep recession that began in 2008.In light of those losses, investors have increasingly come to see Wednesday’s decision from the Fed as crucial to whether the current bull market has more room to run — the latest episode in a close relationship that developed between financial markets and the Federal Reserve in the aftermath of financial crisis and deep recession that began in 2008.
That autumn, the United States suffered the economic equivalent of a heart attack: financial markets seized up, cutting off the flow of money to companies through the markets. As stocks plummeted and unemployment surged, the Federal Reserve sprang into action, cutting interest rates to near zero and starting a process that would eventually pump trillions of dollars into financial markets.That autumn, the United States suffered the economic equivalent of a heart attack: financial markets seized up, cutting off the flow of money to companies through the markets. As stocks plummeted and unemployment surged, the Federal Reserve sprang into action, cutting interest rates to near zero and starting a process that would eventually pump trillions of dollars into financial markets.
The Fed’s actions were widely credited with cushioning the collapse of markets and supercharging the rally in stocks that began in March 2009. By some measures, it is the longest bull market on record, having pulling the S&P 500 up by more than 275 percent. The Fed’s actions were widely credited with cushioning the collapse of markets and supercharging the rally in stocks that began in March 2009. By some measures it is the longest bull market on record, having pulling the S&P 500 up by more than 275 percent.
As the economy recovered, the Fed began to withdraw some of that support. The central bank began raising the short-term interest rates it controls in December 2015. And it has also effectively withdrawn hundreds of billions of dollars from financial markets this year, which has helped put upward pressure on longer-term interest rates, which are the foundation for key consumer borrowing rates.As the economy recovered, the Fed began to withdraw some of that support. The central bank began raising the short-term interest rates it controls in December 2015. And it has also effectively withdrawn hundreds of billions of dollars from financial markets this year, which has helped put upward pressure on longer-term interest rates, which are the foundation for key consumer borrowing rates.
“The plan for the Fed has been, as the economy heals and approaches something that looks more like a healthy state, they should gradually back away from their support of financial markets and kind of let them fend for themselves,” said Julia Coronado, a former Federal Reserve economist and president of the economic consulting firm MacroPolicy Perspectives. “They have to sort of stand on their own now.”“The plan for the Fed has been, as the economy heals and approaches something that looks more like a healthy state, they should gradually back away from their support of financial markets and kind of let them fend for themselves,” said Julia Coronado, a former Federal Reserve economist and president of the economic consulting firm MacroPolicy Perspectives. “They have to sort of stand on their own now.”
But in recent months, investors have begun to worry about whether that’s possible as the trade war between China and the United States grinds on, and rising costs start to erode corporate profits.
The tumble in stocks likely won’t figure prominently in the Fed’s decision-making process on Wednesday. In general, Fed officials tend to discount swings in the stock market, emphasizing that their mandate is to help deliver low unemployment and stable prices, not manage investors’ positions.