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Dec 19, 2018

Investopedia Markets: Stocks hit lows for the year as Fed hikes rates

By Caleb Silver Updated Dec 19, 2018

The FOMC raises rates as expected yet investors keep selling

U.S. markets sank to lows for the year following the FOMC's decision to raise overnight lending rates by one quarter percent to a target range of 2.25% - 2.5%. The rate hike was expected, but investors may have been hoping for signs that the FOMC would take future rate hikes off the table for 2019. They did not get them. FOMC Chair Jerome Powell indicated that there may be at least two rate hikes planned for 2019 to bring the overnight lending rate to 2.9%, to what the Federal Reserve calls 'neutral' policy.
U.S. markets were higher going into the Fed's announcement, but promptly sold off as Powell addressed members of the media following the announcement. In its statement, the FOMC said, "...the labor market has continued to strengthen and that economic activity has been rising at a strong rate." As per its mandate, the Federal Reserve adjusts monetary policy to foster economic growth, low unemployment and reasonable inflation. Chairman Powell indicated that the economy is as strong as it has been since before the 2008-09 financial crisis, although inflation was more subdued than expected. The Fed's target rate for inflation is between 2-2.5%, and it currently stands just below 2%.
The major U.S. markets are all in a correction, or worse, having fallen more than ten percent from their highs in September. The Russell 2000 is in a bear market, having fallen more than 20% from its highs. Powell and the Fed have been the target of recent criticisms from President Trump who has implored Powell to stop raising rates as it is hurting the markets and the economy. Powell responded to questions about those attacks in his press conference following the FOMC announcement saying that, "Political considerations are not a consideration." Powell indicated that volatility has heightened in financial markets but did not allow that fact to influence the FOMC's decision to raise rates.

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Source: Investopedia

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