Stocks wobble and end lower after Fed raises interest rates

24 March 2018, 12:35 | Andres Norman

Stocks Close Lower As Fed's Comments Spark Turbulence

Fed moves to prevent US economy from overheating

"Fiscal policy has become more stimulative".

Stocks greeted the Fed's interest-rate increase with volatile trading Wednesday, as the central bank delivered the expected hike but Chairman Jerome Powell gave the market some angst. The markets may have heaved a sigh of relief knowing that the dot plot, as it is called, for 2018 remained unchanged at three rate hikes. "People are buying more shoes, but higher rates do pose a challenge for footwear companies, which need loans to expand and grow because it will now cost them more to borrow".

In December, the Fed predicted U.S. gross domestic product (GDP) to grow 2.5 percent this year, 2.1 percent in 2019 and two percent in 2020.

The US dollar extended losses in Asia yesterday after the Fed stuck to its target for interest rate hikes this year, but fresh fears of a trade war hit equity markets as US President Donald Trump prepared fresh sanctions on China.

Powell justified the Fed keeping its inflation forecast the same by noting that price pressures have been weak for years.

The revisions will have an effect on the Fed's path of gradual normalization of monetary policy, including the number of envisaged interest rate hikes. Unemployment is now anticipated to fall to 3.8 percent this year and 3.6 percent in 2019, which would be the lowest level since 1969.

Some analysts say a short-term economic stimulus from Congress - in the form of a $1.5 trillion tax cut and federal spending increases - could eventually push the Fed to add a fourth rate move.

"The economic outlook has strengthened in recent months", the Fed said in a statement.

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But a host of factors, including the massive tax cuts enacted by Congress, a weaker dollar and robust job creation, suggest that the Fed is likely to adopt a more hawkish policy stance.

"I read this as the Fed is still having trouble rectifying moderate growth and subdued inflation", said economist Lindsey Piegza of Stifel. My take is this: The Fed is going to raise rates at least 1½ but more likely 1¾ percentage points between now and the end of 2019.

The Fed has said it expects to raise interest rates a total of three times this year, and one of the key debates on Wall Street is whether it will wind up increasing rates three times or four.

The Federal Reserve is sticking to a cautious strategy on raising interest rates in 2018, but some officials left scattered hints they are more anxious about rising inflation than the central bank let on.

Similarly, inflation expectations also shifted slightly.

Credit card debt is at a record high in the USA, totalling more than $1 trillion in 2017.

That increased optimism appears to downplay lingering uncertainties in the recovery, including structural issues such as a ballooning debt load and trade barriers that could turn the economy's tail winds back into head winds. In December, it raised this rate to between 1.25% and 1.5%.

According to Krungsri Securities, the gains the SET Index logged for most of the session yesterday were also driven by export growth of 10.3 per cent year on year in February, a historic high that month in the number of tourist arrivals at 3.56 million, and increases in global crude oil prices after a 2.6-million-barrel reduction in United States crude stocks.



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