The Morning Journal (Lorain, OH)
Fed raises rates, stocks skid to 15-month low
Stocks rallied big then took a dive Wednesday after the Federal Reserve raised interest rates again.
NEW YORK >> Stocks gave up a big rally and took a dive in afternoon trading Wednesday after the Federal Reserve raised interest rates again and signaled it’s likely to keep raising them next year. The market finished at its lowest level since September 2017.
The U.S. central bank said it expects to increase interest rates at a slightly slower pace next year, and also said it isn’t planning any changes in the gradual shrinking of its large bond portfolio. But investors appeared to hope the Fed would unveil a sharper slowdown in interest rate hikes and other credit tightening policies because economic growth is likely to slow down.
The Dow Jones Industrial Average swung from a gain of 381 points right before the Fed’s decision was announced at 2 p.m. Eastern time to a closing loss of 351 points. The index is down almost 9 percent in December.
The rate increase, to a range of 2.25 percent to 2.5 percent, was the Fed’s fourth this year. Its benchmark interest rate is at its highest point since 2008, which means higher borrowing costs for many consumers and businesses.
Bond prices rose, sending yields sharply lower. The yield on the 10year Treasury note fell to 2.77 percent from 2.84 percent immediately before the Fed’s announcement and 2.82 late Tuesday. That’s a substantial move for that benchmark lending rate. Bonds yields are benchmarks for many kinds of long-term loans including mortgages.
The Fed is now forecasting two increases in rates in 2019 instead of three. 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.
The yo-yo movements for the stock market were a result of markets trying to parse Fed Chairman Jerome Powell’s comments, which essentially were: The economy is strong enough to warrant a rate increase now, but not so strong to need three rate increases, as the Fed had indicated a few months ago.
“Chairman Powell was threading the needle today,” said Frances Donald, head of macroeconomic strategy at Manulife Asset Management. “He had to say that the economic picture is not as good as three months ago, while also saying that the pillars of the economy remain intact. And markets have to react, live, to that ‘on the one hand, on the other hand’ that Powell has to play in this economy.”
But Powell may have failed to smooth the market’s key anxieties. They fear that continued increases in interest rates will slow the economy too dramatically. They’re also concerned about the trade dispute between the U.S. and China, which threatens economic growth and corporate profits.
Internet, technology and consumer-focused companies dropped. Facebook fell sharply after the New York Times reported that the social media network gave companies more access to users’ personal data than it has previously said.