Fed raises interest rates by 25 bps, signals more hikes

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Fed raises interest rates by 25 bps, signals more hikes

The former partner at The Carlyle Group strode to an altar in front of reporters on Wednesday in DC and shrugged off the stock market's two-month plus beating, slowing global economic growth and the ongoing verbal lashing from the guy who hired him (president Trump). It dropped 7 percent Tuesday and closed at a 16-month low, and has fallen nearly 40 percent since October 3.

Asian markets closed lower: Tokyo's Nikkei added 2.8 per cent, Hong Kong's Hang Seng 0.9 per cent, and China's Shanghai Composite lost 0.5 per cent.

In New York, U.S. S&P 500 Index lost 1.54 percent to hit its lowest level since September 2017.

In energy markets, benchmark US crude rebounded 48 cents to $46.37 per barrel in electronic trading on the New York Mercantile Exchange.

Greg McBride, chief financial analyst at Bankrate.com, a personal finance website, said: "The Fed downshifted their projections of 2019 economic growth, inflation, and interest rate hikes - not in a big way but enough to remove the urgency of repeated rate hikes". "We have the tools to carry it about, we have the independence that we think is essential to be able to do our jobs in a non-political way. 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", he said.

The quarter-point hike, to a range of 2.25 percent to 2.5 percent, lifts the Fed's benchmark rate to its highest point since 2008. However, during the FOMC's last meeting in September, slightly more committee members projected three rate hikes in 2019. After all, central banks were motivated by noble economic objectives whose importance was accentuated by how close the world had come to a multi-year global depression, a threat that imparted a bias to policymakers' risk-management paradigm.

United States gold futures declined 0.7 percent to $1,247.7 per ounce on Thursday.

After a sharp early gain, the S&P 500 index retreated 30 points, or 1.2 percent, to 2,437 at 2:38 p.m.

The move which comes amid President Trump’s repeated criticism of Fed rate hikes is expected to set off a domino effect across the US economy
The move which comes amid President Trump’s repeated criticism of Fed rate hikes is expected to set off a domino effect across the US economy

Investors have had a more pessimistic view than the Fed, foreseeing one increase at most in 2019, according to interest- rate futures prices.

Japan's benchmark Nikkei 225 index also closed at its lowest level since September a year ago. -China trade war, still-mild inflation, stomach-churning drops in stock prices - has led the Fed to consider slowing its rate hikes in 2019 to avoid weakening the economy too much. Wren said investors want to know that the Fed is keeping a close eye on the situation. It's hard to wean the economy and investors off a decade of easy money.

The two-year USA yield stood at 2.665 per cent, just 0.111 per cent less than the 10-year yield.

As one 25 basis point rate hike would likely invert the yield curve, many market players are sceptical whether the Fed can raise rates at all next year.

In recent years, investors had grown used to Fed officials telegraphing any future rate changes well in advance.

- Given FOMC staying a bit more hawkish than market pricing, the US Dollar has been able to recover some ground versus the other majors; however, is only back to breakeven on the day.

Prices crossed the 200-day moving average around $1,252 an ounce before the Fed's statement on Wednesday. The dollar slipped to 112.36 yen from 112.53 yen. But as markets internalised more fully the Fed announcements, they tipped in favour of the view that the central bank risks a policy mistake.

Button said that he sees currency commodities - Canadian dollar, Australian dollar - as outperforming next year, especially in the second half of the year when recession fears appear to be overblown. This will allow him to explain any abrupt policy changes.

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