Fed Chief: 2018 Best Year Since Financial Crisis

December 22 03:27 2018

-The U.S. dollar ticked higher after two days of sharp losses brought on by fears about the economy and slower increases in interest rates.

In recent years, investors had grown used to Fed officials telegraphing any future rate changes well in advance. Stocks didn’t take the news well.

The less upbeat outlook sent shares tumbling and Wall Street closed down sharply, while the dollar advanced against the euro.

“I think the Fed may be underestimating other factors at play”, said Bob Baur, chief global economist at Principal Global Investors in Des Moines, Iowa in the United States.

My research on the relationship between stocks and the Fed over the past two decades suggests the answer isn’t straightforward.

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. He partly blamed programmed trading for exaggerated moves in the market. However, during the FOMC’s last meeting in September, slightly more committee members projected three rate hikes in 2019. Markets tend to move, however, on what investors anticipate will happen further out.

Trump has sought to induce the Fed to keep interest rates low during his presidency.

The Fed maintained its optimistic assessment of economic activity and the labor market, noted that the unemployment rate has “remained low” as opposed to “declined”, continued to observe that headline and core inflation were running near 2%, and tweaked its forward guidance for the policy rate.

“The market was looking for an even more cautious assessment given that the equity markets have been suffering and the economy is showing signs of a slowdown globally”.

FedEx plunged after saying worldwide shipping, especially in Europe, fell in the latest quarter. It wasn’t as supportive as some had hoped.

As markets had expected, the U.S. Federal Reserve raised its benchmark interest rate by a quarter-point on Wednesday. In fact, they now expect a rate cut in 2020.

“We are in the heavy lifting phase of monetary policy”, said Rinehart. But it does so primarily when markets drop a lot. And huge high-tech companies, once the best-performing stocks on the market, are now leading the way lower.

The Nasdaq Composite index slumped to the brink of a bear market, finishing nearly 20% off its August record.

Yet while stock markets may be clamouring for an end to monetary tightening, investors should take comfort in the knowledge that the Fed does not believe the world’s largest economy is about to slip into recession.

The Fed raised key overnight lending rate rates by 0.25 per cent point as expected to a range of 2.25 per cent to 2.50 per cent. While such a fact may prove true, the prevailing sentiment now is that the Fed is taking itself way off course.

A rise in short-term interest rates and a fall in the long-date yield rekindled worries of an inversion in the yield curve, where shorter-debt yields become higher than longer-term ones. The Dow fell 464.06 points, or 2 percent, to 22,859.60 after sinking as much as 679. The U.S. economy has been growing since 2009, and most experts think it will keep expanding for now.

In the wake of the Fed’s announcement, US stocks declined sharply on Wednesday, with both the Dow Jones Industrial Average and the Standard & Poor’s 500 index falling about 1.5 percent.

To hit a bear market, it would need to drop another 6 percent from the peak. In October he described the Fed as “crazy”, “loco”, “going wild” and “out of control” for gradually raising rates. They clearly wanted more from the Fed and its chairman, Jerome Powell, even though their policy action and projections fell in line with most economists’ expectations. Read the original article.

This article is republished from The Conversation under a Creative Commons license.

9 2011 shows the US Federal Reserve building in Washington DC. AFP

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